[Senate Report 107-228]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 527
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-228

======================================================================



 
                      WATER INVESTMENT ACT OF 2002

                                _______
                                

                 July 29, 2002.--Ordered to be printed

                                _______
                                

   Mr. Jeffords, from the Committee on Environment and Public Works, 
                        submitted the following

                              R E P O R T

                         [to accompany S. 1961]

                             together with

                             minority views

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Environment and Public Works, to which was 
referred a bill (S. 1961) to improve financial and 
environmental sustainability of the water programs of the 
United States, having considered the same reports favorably 
thereon with an amendment and recommends that the bill, as 
amended, do pass.

                    General Statement and Background

Clean Water
    In 1970, the Congress began an extensive evaluation of the 
effort to provide policy guidance and Federal assistance to 
clean up the Nation's waters. The review process culminated in 
the enactment of P.L. 92-500, the Federal Water Pollution 
Control Act Amendments of 1972, a comprehensive, national 
approach to water pollution control that responded to the need 
to strengthen Federal and State efforts to control the 
discharge of pollutants into our waters. This year is the 
thirtieth anniversary of that landmark legislation. At the 
time, there was widespread recognition of the Nation's water 
quality problems and frustration over the slow pace of 
industrial and municipal cleanup efforts under existing 
programs. The 1972 legislation completely rewrote existing 
water pollution control laws and represented a major change in 
pollution control laws and policies at both the State and 
Federal levels. The Amendments established as goals the 
reduction, and ultimately the elimination, of discharges of 
pollutants from municipal sewage systems and industrial plants.
    To that end, the 1972 Amendments provided a significantly 
strengthened program of grant assistance to municipalities for 
the construction of sewage treatment facilities to meet 
effluent limitations and other requirements of the law. The 
Federal share of eligible project costs was raised from 55 to 
75 percent, and $18 billion was authorized for grants for the 
construction of treatment facilities under the new law. While 
that law increased Federal aid and expanded the Federal grant 
share, the Congress also recognized that this initial level of 
Federal financial assistance was temporary and expected States 
and municipalities to eventually assume full responsibility for 
the operation, maintenance, and replacement of constructed 
facilities.
    In 1977, the Congress noted that the program was not 
working as expected for a number of reasons, including erratic 
funding patterns and a failure to address existing waste 
treatment needs. To address those problems, Congress amended 
the Act, now called the Clean Water Act (CWA), to extend the 
secondary treatment deadlines, to authorize $25.5 billion for 
the construction grants program, and to provide new incentives 
to address wastewater problems with innovative or alternative 
treatment technologies. The shift to ultimate State and local 
responsibility was started in 1977 with amendments, in P.L. 95-
217, that increased the State role in managing the construction 
grants program.
    In 1981, the Congress again addressed the municipal 
program, with reforms intended to focus on meeting backlog 
needs, by using Federal dollars to assist the most urgent 
treatment needs and most serious water pollution problems, and 
to provide funding stability. The 1981 Amendments, P.L. 97-217, 
brought about major reforms in the program and signaled a 
gradual transition from a high level of Federal financial 
involvement to greater State and local responsibility. Changes 
were made to refocus the program on water quality, the Federal 
share was reduced from 75 to 55 percent, and the program's 
authorization level was reduced from $5 billion to $2.4 billion 
per year.
    The major issue facing the municipal pollution control 
program in the late 1980's was how to manage a continued 
transition to State and local responsibility and self-
sufficiency, while assuring timely completion and continued 
compliance by all municipal facilities. The $40 billion 
investment made under the construction grants program by 1987 
needed to be protected by leaving in place adequate 
institutional and financial mechanisms at the State and local 
level. Only through a sound financial mechanism would the 
needed capital improvements for municipal wastewater treatment 
be financed and progress in water quality improvements be 
maintained.
    The Water Quality Act of 1987, P.L. 100-4, amended the law 
to create State Water Pollution Control Revolving Funds (SRFs), 
thus continuing the transition started with the 1981 CWA 
Amendments while assuring that construction of necessary 
facilities would continue to move forward. It authorized $18 
billion over 9 years for sewage treatment plant construction, 
through a combination of the traditional constructions grants 
program and SRF assistance. Under the new SRF program, the 
Federal Government gradually reduced straight categorical 
grants for publicly owned treatment works and, in their place, 
provided money for States to establish loan funds, which they 
supplement with a required match of 20 percent of non-Federal 
funds. Using SRF funds, States make low interest loans 
available to their communities for construction of treatment 
facilities. Communities repay loans to the State, thus 
providing a capital base for financing municipal wastewater 
treatment facilities far into the future. Today, SRFs are being 
credited with repayments from the initial loans made with the 
Federal capitalization grant funds, so that the SRFs generate a 
stream of revenues that enable a State to leverage the initial 
funds many times over.
    The SRF is a far more flexible program than its 
predecessor, the construction grants program. Under the SRF, 
States have a wide variety of options for the type of 
assistance, including loans, refinancing, purchasing, or 
guaranteeing local debt, and purchasing bond insurance. States 
also set loan terms and repayment periods (up to 20 years). 
SRFs are available to fund a wide variety of water quality 
projects, including nonpoint source and estuary management 
projects, as well as more traditional municipal wastewater 
treatment projects.
    When the 1972 law was enacted, it established the interim 
goal of achieving a level of water quality that protects a 
balanced population of both shellfish and wildlife and allows 
recreation in and on the water by July 1, 1983. Although 
attainment of that goal has not been achieved on a nationwide 
basis, considerable progress has been made in reversing the 
previous trend of increasing degradation of the quality of our 
surface waters. According to the EPA's report entitled 
``Progress in Water Quality: A National Investment in Municipal 
Wastewater Treatment, substantial reductions have occurred in 
the discharge of pollutants into the Nation's waters at the 
same time that population has grown, and economic and 
industrial activities have increased.
    Construction and operation of municipal sewage treatment 
plants have contributed greatly to that progress. Since 
enactment of P.L. 92-500, the Federal Government has 
contributed $73 billion, while State and local governments have 
contributed more than $35 billion of their own funds, to 
construct publicly owned treatment works. In 1977, 37 percent 
of the secondary treatment plants required by the Clean Water 
Act had been completed. By 1983, that number had risen to 69 
percent, and by 1996, 96 percent of required secondary 
treatment plants were operating to remove thousands of tons per 
day of the two principal conventional pollutants, suspended 
solids and biological oxygen demand (BOD). In 1996, 16,024 
treatment facilities were in operation, serving 72 percent of 
the U.S. population. When treatment facilities that meet all 
documented needs are in operation, they will serve 88 percent 
of the population.
    The reported trends in improvements to the Nation's water 
quality are encouraging and demonstrate that the basic 
structure of the Clean Water Act is sound. Some of our more 
obvious and major pollutant problems created by sewage 
treatment plants and discharges by industry are being solved. 
The EPA has reported that a majority of the Nation's waters, 
last assessed in 1998, meet the interim CWA goal of fishable, 
swimmable waters.
    However, EPA also reports that nearly 40 percent of 
assessed stream miles, river miles, and lake acres are 
impaired, and another 10 percent are rated good, but 
threatened, for one or more uses designated by the States. 
Municipal point sources continue to cause water quality 
impairments and were estimated in 1998 to be the leading source 
of impairments in 10 percent of assessed rivers and lakes. 
Municipal point sources, combined sewer overflows and storm 
sewers were cited as the most widespread sources of pollution 
in assessed estuaries. Further, problems of pollution from 
nonpoint sources, such as runoff from farmlands and urban 
areas, and the challenge of controlling overflow discharges 
from municipal combined and separate sanitary sewers must be 
addressed.
    The last major changes to the CWA occurred in 1987 with 
enactment of the Water Quality Act. Since the 100th Congress, 
the Committee on Environment and Public Works has held numerous 
hearings on implementation of the law and clean water programs. 
Although a reauthorization bill was reported from the committee 
in the 103d Congress, in 1994, the Senate did not consider it. 
Since then, the committee has continued to review clean water 
programs, and in the 107th Congress, the committee has focused 
attention on infrastructure needs of wastewater and drinking 
water systems.
Safe Drinking Water
    In 1974, the Congress enacted the Safe Drinking Water Act, 
P.L. 93-523 (SDWA). Congressional action came in response to a 
series of reports on the large number of industrial and 
agricultural chemicals that had polluted surface water and 
groundwater supplies used by communities, and studies on the 
presence and health effects of naturally occurring contaminants 
found in the water supplies of many small, rural communities.
    The SDWA requires all public water supply systems to comply 
with health standards issued by EPA, which are the principal 
expression of the Federal role in safe drinking water. 
Standards apply to public water systems and are established to 
protect public health related to contaminants that may occur in 
drinking water supplies.
    Congress reauthorized the SDWA in 1986 in P.L. 99-339, 
making significant changes in the law. At the time, there was a 
widespread consensus that EPA had not set standards for a 
sufficient number of contaminants to adequately protect 
drinking water supplies. The States, along with water suppliers 
and the environmental community urged that EPA be required to 
move forward on a standard-setting agenda that would fulfill 
the Federal mandate. In the 1986 Amendments, Congress listed 83 
contaminants, based on studies conducted by EPA and the 
National Academy of Sciences and required EPA to establish or 
revise standards for each contaminant within 3 years. In 
addition, the 1986 Amendments required EPA to promulgate 
regulations for 25 additional contaminants to the list every 3 
years after the standards for the initial 83 contaminants had 
been issued.
    As regulations under the 1986 Amendments began to take 
effect, increasing concerns were expressed about the impact of 
Federal regulations on local drinking water systems and about 
the capacity of States to keep up with a growing workload. A 
key concern was that national primary drinking water 
regulations and additional rules under development were 
imposing substantial costs on public water systems. It was 
recognized that many systems would not be able to finance 
treatment facilities to comply with the new regulations without 
financial assistance. Many small public water systems have 
difficulty complying with Federal drinking water regulations, 
in some cases due to a lack of technical expertise and 
financial resources for treatment and monitoring. In 1993, The 
EPA proposed 10 recommendations for SDWA reform, including the 
creation of State Revolving Loan Funds for drinking water 
capital investments, modeled after the loan funds created under 
the CWA in 1987.
    The result of more than 2 years of hearings and discussion 
with stakeholders, was enactment of the 1996 SDWA Amendments, 
P.L. 104-182. This legislation modified the Act's standard 
setting provisions to give EPA more discretion to identify 
contaminants that warrant regulation, including new risk 
assessment and cost-benefit considerations for future 
standards, and modified the Act's monitoring requirements which 
could have resulted in higher costs than necessary for many 
systems, especially small systems. The 1996 Amendments 
established a drinking water SRF program, authorized at $9.59 
billion for 10 years. This new program built on the successful 
clean water SRF model with certain refinements, especially 
concerning the needs of small and financially disadvantaged 
systems. The legislation permitted States to provide loan 
subsidization, including principal forgiveness, for projects in 
economically disadvantaged communities. States could provide 
extended loan repayment terms (up to 30 years) for 
disadvantaged communities. Further, States could transfer funds 
between the two SRF programs, although few have taken advantage 
of this funding flexibility. The Amendments also included 
measures to ensure that drinking water systems develop and 
maintain technical, financial, and management capacity to 
comply with drinking water regulations.
SRF Programs Today and Remaining Challenges
    The SRF programs in the Clean Water Act and Safe Drinking 
Water Act have demonstrated significant progress. All 50 States 
and Puerto Rico have established programs to participate in 
both.
    Since the first award of clean water SRF capitalization 
grants in 1988, through June 30, 2001, cumulative investment 
has totaled $36.5 billion, consisting of $18.4 billion in 
Federal capitalization grants, plus $18.2 billion in State 
contributions and leveraged bonds. Since 1989, $10.2 billion in 
principal and interest has been repaid to clean water SRFs. 
During that time, SRFs have provided $34.3 billion in 
assistance in the form of loans, refinancing and other types of 
assistance for nearly 11,000 assistance agreements. Nearly 60 
percent of SRF assistance agreements have been for projects in 
communities with populations of less than 10,000. Ninety-four 
percent of clean water SRF assistance has gone to traditional 
wastewater projects (and 61 percent of funds going to secondary 
and advanced treatment projects needed to meet water quality 
standards.) States have also begun using SRF assistance for 
other types of eligible activities, including $1.4 billion for 
2,723 agreements assisting nonpoint pollution management 
projects and $26 million for 23 estuary management projects.
    The drinking water SRF program, though begun more recently, 
is showing significant progress. From 1997 through June 30, 
2001, $6 billion has been invested in the drinking water SRFs; 
consisting of $3.6 billion in Federal capitalization grants 
plus $2.4 billion in State contributions, clean water SRF 
transfers, and leveraged bonds. During that time, States 
entered into 1,776 assistance agreements for 1,846 projects 
totaling $3.8 billion in assistance. To meet the needs of small 
systems, 54 percent of the agreements entered into since 1997 
have been for projects in small communities, those with 
populations of less than 3,300.
    Despite significant investments made previously under the 
CWA's construction grants program, and now through clean water 
and drinking water SRFs, needs remain high, both for wastewater 
and drinking water facilities. The most recent assessment of 
needed publicly owned treatment facilities in the United 
States, the Clean Water Needs Survey, was conducted by EPA and 
the States in 1996 to determine the needed investment in 
wastewater treatment facilities over the next 20 years to 
achieve the water quality goals of the Act. It reported a 
national total need of $139.5 billion, of which $128 billion 
was for traditional wastewater treatment facility projects. 
Despite the cumulative investments made in constructing 
secondary and more advanced treatment facilities needed to meet 
water quality standards, the 1996 Needs Survey reported that 
$54 billion of the total was for projects of this type. Based 
on more recent analyses, EPA has increased the $139.5 billion 
estimate to $200 billion, using newer projections of the costs 
for controlling sanitary sewer overflows (SSOs), believed to 
total $82 billion. Later this year, the next Needs Survey, 
reflecting year 2000 clean water needs, will be submitted to 
the Congress, and it is widely expected to greatly exceed 
previous estimates.
    The 1999 drinking water infrastructure Needs Survey, 
submitted to the Congress by EPA in February 2001, estimates 
that the nation's public water systems (approximately 55,000 
community and 21,400 not-for-profit noncommunity water systems) 
need to invest $150.9 billion over the next 20 years. About 
$103 billion is needed now to continue to protect the public 
health and maintain existing distribution and treatment 
systems, that is, to meet current needs involving installing, 
upgrading, or replacing infrastructure to enable a water system 
to continue to deliver safe drinking water. About $48 billion 
is reported as future needs, projects that water systems expect 
to address in the next 20 years as part of routine 
rehabilitation of infrastructure or due to predictable events 
such as reaching the end of a facility's service life.
    These EPA estimates are believed to be conservative and 
likely understate the full costs of needed projects. Many of 
the drinking water systems that participated in the most recent 
Needs Survey could not identify their 20-year needs. Thus, all 
future needs and ineligible needs have not been reported. For 
wastewater systems, much has changed since the 1996 Needs 
Survey in terms of information and attention to infrastructure 
problems, and the Survey due this year will likely identify 
much higher needs, despite recent investments. Moreover, 
private groups and other stakeholders have recently drawn 
attention to infrastructure needs through reports which 
estimate that as much as $1 trillion total may be needed over 
the next 20 years for water infrastructure projects and their 
operation and maintenance. Moreover, these reports estimate 
that there is as much as a $23 billion annual gap between 
current spending levels and amounts needed to address municipal 
wastewater and drinking water system needs.
    The continuing challenges facing the water infrastructure 
industry and Federal, State, and local governments are many and 
varied. They include meeting regulatory requirements, 
especially in the case of drinking water systems which face 
compliance with recently issued, pending, and anticipated 
health protection standards of the EPA to limit arsenic, 
microbials and disinfection byproducts, radioactive 
contaminants and radon, among others.
    For wastewater systems, most of which have achieved the 
Clean Water Act's secondary treatment objectives, the 
continuing challenge is controlling discharges from wet weather 
sources, especially wet and dry weather overflows from combined 
sewer systems (CSOs) and separate sanitary sewer systems 
(SSOs).
    Combined sewer systems are found in 772 communities in 32 
States. EPA estimates that annual CSO discharges 1,260 billion 
gallons of untreated or under-treated wastewater. Nearly 19,000 
municipalities have separate sewer systems that serve a 
population of 150 million, and SSOs can be found in almost 
every sewer system, even though they are intended to collect 
and contain all of the sewage that flows into them.
    In terms of both water quality and dollars, CSOs and SSOs 
represent a large national need. The impact of sewer overflows 
on water quality and public health is significant. The effects 
of untreated overflows include bacterial contamination and 
severe depletion of dissolved oxygen. The most readily 
identifiable problem is the contamination of swimming and shell 
fishing areas, which can result in permanent or temporary 
closings, with severe economic consequences as well as water 
quality and public health implications. The cost to address 
these major infrastructure needs is likely to exceed $130 
billion.
    Small water and wastewater systems face many unique 
challenges in providing safe drinking water and treating 
wastewater for the communities that they serve. The substantial 
capital investments required to rehabilitate, upgrade, or 
install infrastructure represent one such challenge. Although 
the total small system need is much smaller in dollar terms 
compared to the needs of larger systems, the costs borne on a 
per-household basis by small systems are significantly higher 
than those of larger systems. To comply with the new arsenic 
standard, for example, EPA estimates that the annual per-
household cost for large community water systems will average 
from $0.18-$32, while the per-household cost for very small 
community water systems will average from $162-$327.
    One of the most successful components of the 1996 
amendments to the Safe Drinking Water Act was its focus on 
capacity development. Capacity development signifies the 
development of basic financial, technical, and managerial 
skills to operate a water facility in a financially sustainable 
manner.
    The events of September 11 have also demonstrated the 
importance of protecting water infrastructure. In the past 
security projects were not a priority. Today, they are an 
essential tool to protect public health. While EPA has been 
working with facilities to develop vulnerability assessments to 
address security concerns, there is no continuing source of 
funding for security projects at water facilities. By clearly 
making security projects eligible for funding under the SRF, 
this bill will help water facilities protect water 
infrastructure assets.

                     Objectives of the Legislation

    The reported bill has several purposes. First, it seeks to 
update the clean water and drinking water State Revolving Fund 
(SRF) programs, based on experience with them to date. The 
reported bill will maintain the integrity and progress that the 
SRF programs have achieved thus far. The legislation intends to 
make the two programs more parallel by updating elements of the 
Clean Water Act's SRF to include policies contained in newer 
Safe Drinking Water Act SRF. It would broaden the types of 
projects eligible for SRF assistance.
    The reported bill intends to re-invigorate the Federal-
State partnership for clean and safe water by increasing the 
Federal commitment in support of State's efforts. It seeks to 
reduce the gap between water infrastructure needs and available 
funds. At the same time, the legislation seeks to ensure that 
recipients of SRF assistance develop the necessary technical, 
financial, and managerial capacity to operate and maintain 
wastewater and drinking water facilities through proven 
financial strategies such as asset management plans and rate 
structures that account for the full cost of service. It will 
also increase the State's ability and flexibility to address 
needs of small and economically disadvantaged communities in 
building and upgrading wastewater and treatment facilities.
    The reported bill also recognizes the need to provide 
assistance to small community drinking water projects, nutrient 
control treatment projects at wastewater treatment plants, and 
wet weather watershed projects. Finally, the reported bill will 
update the State-by-State allotment of clean water SRF 
capitalization grants, moving from an inadequate 15-year-old 
formula to a new allotment formula based on needs.

                      Section-by-Section Analysis

Section 1. Short Title
    Section 1 cites the short title of the bill as ``The Water 
Investment Act of 2002,'' and contains the table of contents.
Sec. 2. Purposes
    Section 2 describes the purpose of the bill.

       Title I--Federal Water Pollution Control Act Modifications

Sec. 101. Definitions
    Section 101 provides definitions for terms used throughout 
the bill. S. 1961 provides States the discretion to forgive 
principal and extend loan terms on SRF loans to disadvantaged 
communities. It is added as a defined term in the Clean Water 
Act because S. 1961 provides States with the same authority.

Sec. 102. Funding for Indian Programs
    Section 102 increases the set-aside for Indian Programs 
from capitalization grants from .5 to 1.5 percent.

Sec. 103. Requirements for Receipt of Funds General
    Section 103 reauthorizes and modifies Title VI of the Clean 
Water Act. The section expands the types of projects eligible 
for SRF assistance. This section encourages technical 
assistance for small systems and provides additional special 
assistance for disadvantaged communities. This section 
encourages non-traditional projects by giving States the 
discretion to subsidize those projects. Section 103 provides 
for the development of technical, financial and managerial 
capacity at water treatment facilities. It extends the amount 
of time a State may permit for the amortization of a loan. This 
section revises the requirements for a State priority list, 
intended use plans, and the conditions for receipt of 
assistance for an SRF loan. The section also provides a new 
allocation formula for the allotment of capitalization grants 
to the States and Territories and permits private utilities to 
gain access to SRF funds.

Sec. 103(a) Grants to States for Establishment of Revolving Funds
    This section is a conforming amendment. Section 103(a) 
strikes the list of SRF-eligible projects from section 601(a) 
of the Clean Water Act and adds a reference to section 603(c). 
Section 603(c), as amended by S. 1961, modifies current law by 
revising the list of SRF-eligible projects.

Sec. 103(b) Requirements for Construction of Treatment Works
    Section 602(b)(6) of the Clean Water Act establishes the 
requirements for treatment works constructed using the Title II 
construction grants that would apply to treatment works 
constructed using SRF funds. Section 103(b) strikes the 
602(b)(6) requirements except sections 211 (sewage collection 
systems), 511(c)(1) (requirements of the National Environmental 
Policy Act of 1969)), and 513 (labor standards). Section 103(b) 
also strikes the sunset year of 1995 from current section 
602(b)(6).
    Section 103(b) clarifies that section 211 requirements will 
prohibit funding for new sewage collection systems in 
communities in existence from February 15, 2002.

                               DISCUSSION

Labor Standards-Section 103(b)
    The modifications to section 513 of the Clean Water Act 
ensure that the Davis-Bacon Act requirements that ``laborers 
and mechanics be paid at wages not less than the prevailing 
wage'' apply to all projects financed by State Revolving Fund 
programs under this Title. Section 513 of the Clean Water Act 
provides that ``all laborers and mechanics employed by 
contractors or subcontractors on treatment works for which 
grants are made under this Act shall be paid wages at rates not 
less than those prevailing for the same type of work on similar 
construction in the immediate locality.'' This section amends 
602(b)(6) to provide that Davis-Bacon prevailing wage 
requirements apply to any project financed by a State water 
pollution control revolving loan fund under title VI and 
section 205(m). As a result, the Davis-Bacon prevailing wage 
requirement will apply to all projects financed by federally 
capitalized SRF's, including projects financed by funds repaid 
into the SRF and then lent to support additional construction 
projects, as well as projects funded with State matching funds, 
interest earnings, and net bond proceeds.
Sec. 103(c). Projects Eligible for Assistance

                                SUMMARY

    This section modifies the project eligibility list with six 
changes. The language clarifies that planning, design, 
associated preconstruction costs, and necessary activities for 
siting the facility and related elements are eligible for funds 
under the Clean Water Act (CWA) SRF as standalone items. 
Second, the section clarifies that reuse, reclamation, and 
recycling of water are eligible projects under the CWSRF as 
standalone items. In order to be eligible for funding, the 
primary purpose of the project must be the protection, 
preservation, or enhancement of water quality. Third, the 
section clarifies that water conservation projects or 
activities with a primary purpose of protecting, preserving, or 
enhancing water quality are eligible expenses under the CWSRF. 
Fourth, the section allows for funding of projects to increase 
the security of wastewater treatment works excluding any 
expenditure for operations or maintenance. Fifth, the section 
clarifies that measures to control municipal storm water whose 
primary purpose is the preservation, protection, or enhancement 
of water quality are eligible for funds under the SRF. Sixth, 
the bill adds language to allow the funding of private 
utilities that principally treat municipal wastewater or 
domestic sewage.
    In addition, the section clarifies that eligible projects 
may include projects that use one or more nontraditional 
approaches such as land conservation, low-impact development 
technologies, beneficial reuse of brownfields, watershed 
management actions, decentralized wastewater treatment 
innovations, and other nonpoint best management practices), if 
the primary purpose of the project is the preservation, 
protection, or enhancement of water quality.

                               DISCUSSION

    By clarifying that pre-construction activities are eligible 
for funding, this provision encourages treatment works to take 
the opportunity to rationally evaluate the financial resources 
necessary to implement construction. This section may include 
the funding of pre-construction costs as stand-alone projects. 
This section may also encompass an integrated construction 
strategy such as design-build and design-build-operate. Under 
these agreements, municipalities enter into agreements with a 
single contractor to assume responsibility for the pre-
construction, construction, and in some cases the operations of 
a facility. By making a long-term financial commitment to a 
single contractor, municipalities can receive more favorable 
contract terms and realize better value on their investment. 
This provision will ensure that small communities with few 
resources available to develop a project in its early stages 
can receive assistance for pre-construction costs.
    The term ``necessary activities for siting the facility'' 
will permit land acquisition required for siting the facility 
with SRF funds through the purchase of property, easements, or 
rights of way.
    Reuse, reclamation and recycling projects that are a part 
of a State's 319 plan are currently eligible for SRF funds. 
This section makes these projects eligible regardless of 
whether or not they are included in a 319 plan, provided that 
their primary purpose is protecting, preserving, or enhancing 
water quality. Throughout the Nation, water availability is 
becoming a more prevalent issue in the protection of water 
quality. In many cases, a lack of water or a surplus of water 
at the wrong time of the year can have serious impacts on water 
quality in a region. The committee intends that these projects 
be eligible for SRF funds in order to ensure that water 
managers are able to utilize SRF assistance for the full 
spectrum of actions necessary to protect water quality. The 
committee recognizes that there may be ancillary water supply 
benefits to a reuse, reclamation, or recycling project, however 
the primary purpose of these projects must be to protect, 
preserve, or enhance water quality.
    This section also makes water conservation projects with a 
primary purpose of protecting, preserving, or enhancing water 
quality eligible for SRF funding. In many arid states of the 
West, water conservation is directly tied to water quality. Low 
stream flows lead to a concentration of pollutants, but where 
irrigators conserve water, drawing less water from streams, 
water quality is improved downstream. These types of projects 
could include: piping or lining of an irrigation canal, 
recovery or recycling of wastewater or tail water, irrigation 
scheduling, measurement or metering of water use, or 
improvement of on-field irrigation efficiency. Subparagraphs 
(D), (E), and (F) do not allow SRF funds to be used for any 
irrigation improvements or activities that do not have as their 
primary purpose the protection, preservation, or enhancement of 
water quality nor do they permit facilities operating with a 
NPDES permit to be eligible for funding under those 
subparagraphs.
    This section expressly provides for the funding of projects 
the purpose of which is to increase the security of wastewater 
treatment works, excluding any expenditure for operations or 
maintenance is an important element of this legislation. EPA 
has already made some of these activities eligible through 
guidance. It is the intent of the committee that this section 
includes at least the specific projects already eligible for 
funding. The committee recognizes that security projects have 
been eligible for funding in the past.
    Finally, this section clarifies that measures to control 
municipal storm water whose primary purpose is the 
preservation, protection, or enhancement of water quality are 
eligible for SRF funds. The committee recognizes that storm 
water activities have been eligible for funding in the past.
    In addition to the changes to the project eligibility list, 
this section includes language to clarify that projects using 
non-traditional approaches to water quality problems are 
eligible for funding under the CWSRF. This provision has been 
included to encourage alternative practices of water treatment 
According to the 1998 report to Congress by the National Water 
Quality Inventory Report, ``the top sources of water impairment 
[of rivers and lakes] are agriculture, hydromodification, urban 
runoff, and storm sewers.'' Clearly traditional wastewater 
treatment facilities will not fully address these problems.
    Non-traditional approaches are not often funded by the SRF. 
Non-traditional approaches may include, but are not limited to, 
land conservation, low-impact development technologies, 
beneficial reuse of brownfields, watershed management actions, 
decentralized wastewater treatment innovations, and nonpoint 
best management practices. They may also include, but are not 
limited to, decentralized and nonstructural technology. 
According to EPA's draft report, ``Paying for Water Quality,'' 
one of the most significant barriers to funding for 
decentralized systems is ``restricted access to funding.'' 
Projects using these technologies are currently eligible for 
funding through the SRF, but can be overlooked in favor of more 
traditional, structural approaches to water quality issues.
Sec. 103(d). Extension of Loans; Types of Assistance

                                SUMMARY

    Section 103(d) includes mechanisms designed to increase the 
flexibility offered to States in administering SRF loans and to 
improve assistance provided to disadvantaged and small 
communities.
    Section 103(d) provides three new provisions to respond to 
the needs of small and disadvantaged communities. First, this 
section allows States to extend a loan term to a disadvantaged 
community from 20 years to a maximum of 40 years as long as it 
does not exceed the design life of the project. Second, the 
section allows States to offer principal forgiveness for SRF 
loans to disadvantaged communities as the Safe Drinking Water 
Act allows. Third, the section allows States to provide loan 
subsidization, including principal forgiveness, to a non-
disadvantaged community if the community demonstrates that the 
benefit of that subsidy is being directed to disadvantaged 
users in their community. The section limits this type of 
subsidization to 15 percent of a State's annual capitalization 
grant.
    In addition to the flexibility provided for disadvantaged 
communities, this section includes several flexibility 
mechanisms that States may use with all communities. First, 
this section allows States to extend a loan term from a maximum 
of 20 years to a maximum of 30 years for any community as long 
as that does not exceed the life of the project. Second, this 
section allows States to provide loan subsidies, including 
principal forgiveness, for any community to meet the 
requirements of this bill for technical, financial, and 
managerial capacity development section 103(h) of S. 1961. 
Third, this section allows States to provide loan 
subsidization, including forgiveness of principal, for projects 
that are considered to be non-traditional. Fourth, this section 
authorizes States to retain an additional 2 percent of its 
capitalization grant to help provide small treatment works 
technical and planning assistance and capacity development 
assistance. Finally, this section increases the percentage of a 
capitalization grant a State may use for program administration 
from 4 to 6 percent.

                               DISCUSSION

    This section is the focus of this bill's efforts to 
increase the flexibility offered to States in administering the 
SRF program. The majority of the items included here duplicate 
flexibilities already offered in by the Safe Drinking Water 
Act.
    This section includes three provisions to respond to the 
needs of small and disadvantaged communities. The first new 
provision expands on the extension of the loan term from 20 to 
30 years that is offered to all communities. For disadvantaged 
communities, this section allows States to extend a loan term 
up to 40 years. The committee recognizes that extending the 
amortization time of SRF loans may prolong the amount of time 
before SRFs are able to ``revolve'' funds without additional 
Federal assistance The committee expects States to balance the 
extension of more flexible loan terms with the need to have a 
strong corpus of funds revolving in the SRF.
    A particular concern raised during the committee's hearings 
was the apparent gap in the State's ability to provide loan 
subsidization to communities that are not disadvantaged as a 
whole, but include populations of disadvantaged users. 
Disadvantaged users in these communities might not be able to 
afford a rise in rates that would accompany new construction. 
To help address this concern, this section allows States to 
provide loan subsidization, including principal forgiveness, to 
a non-disadvantaged community if the community demonstrates 
that the benefit of that subsidy is being directed to 
disadvantaged users in their community. Funds used in this 
manner are limited to 15 percent of a State's annual 
capitalization grant. This provision should benefit large 
municipalities where residential incomes vary widely and may 
exclude an area from participating in State assistance programs 
designed for disadvantaged communities.
    In order to meet the demonstration requirement in this 
provision, a community is required to ``demonstrate and 
document'' to the State that the subsidization will be 
directed, to the maximum extent practicable, through the user 
charge rate system, or similar program, to disadvantaged users 
within the residential user class of the community in which the 
treatment works is located. States have the discretion to 
identify disadvantaged users through existing lists such as, 
but not limited to, those from State or Federal social 
programs, LIHEAP, or those generated from voluntary responses 
from disadvantaged individuals. EPA is authorized to provide 
information to assist States in identifying disadvantaged 
users.

Sec. 103(e). Limitations
    This section adopts limitations on the use of loan 
subsidization described in section 103(d). In order for SRF's 
to remain a viable source of funding in the future, they must 
retain a strong corpus of funding. To maximize funds available 
for loans, this section caps the percentage of their 
capitalization grant States may use to provide loan 
subsidization. A State may use up to 30 percent of its 
capitalization grant to provide assistance for loans to 
disadvantaged communities; to provide assistance to a community 
to develop technical financial, and managerial capacity; to 
provide assistance to disadvantaged users; and to provide loan 
subsidization for projects that use one or more non-traditional 
approaches. A State may use up to 15 percent of its 
capitalization grant to provide assistance to non-disadvantaged 
communities with disadvantaged users. This 15 percent is part 
of, not in addition to, the 30 percent cap.
    States may use up to 2 percent of its capitalization grant 
to provide capacity building assistance to small treatment 
works. This 2 percent is not part of the 30 percent cap. States 
may use up to 6 percent of its capitalization grant for program 
administration. This 6 percent is not part of the 30 percent 
cap.
    The committee recognizes that this legislation gives States 
the authority to dedicate significant portions of their annual 
capitalization grants to loan subsidization, technical 
assistance, or program administration. The committee recognizes 
that this could impact the length of time it takes a State's 
SRF to revolve. However, the committee intends for States to 
balance the use of these flexibility mechanisms with the need 
to maximize the use of funds in the SRF.
Sec. 103(f). Consistency With Planning Requirements

                                SUMMARY

    This section requires ensures that recipients of SRF funds 
consult and coordinate infrastructure construction plans with 
local land use plans, regional transportation improvement and 
long-range transportation plans, and State, regional, and 
municipal water shed plans. Recipients of SRF funds must 
demonstrate and document to the State that they have consulted 
and coordinated with the agencies that are responsible for 
these plans.

                               DISCUSSION

    Commercial and residential development requires substantial 
infrastructure to support it. It requires investment from the 
public sector for roads, water lines, school, and public safety 
resources as well as private infrastructure such as power and 
telephone lines.
    Public officials have developed infrastructure-related 
tools for managing growth. For example, local officials may 
establish urban service areas, adopt adequate public facilities 
ordinances, levy impact taxes or fees, or use similar 
mechanisms to internalize the true economic costs of new 
development. In addition, an increasing number of States have 
recently enabled or required local jurisdictions to manage land 
more efficiently through the designation of growth areas or 
application of State criteria for funding infrastructure.
    Usually costing of millions of dollars per mile, capital 
investments in new water infrastructure are one of the most 
expensive forms of public infrastructure needed to support 
development. Sewage treatment plants often cost millions of 
dollars each, and water lines cost several hundred thousand 
dollars per mile, costs that are not insignificant. Moreover 
the costs of operation and maintenance of infrastructure are 
substantial and continuing.
    Infrastructure construction is not only capital intensive; 
it has a significant effect on the environment. In a report 
from the Open Lands Project, a Chicago-based urban conservation 
group, the group found that water infrastructure plans which 
are not coordinated with development plans such as land use 
plans, watershed plans, and transportation plans may cause 
environmental problems. The report states, ``the effect of 
urbanization on water quality may be the most important 
'environmental impact' of the entire [planning] process, and 
yet it remains unexamined and unaddressed.'' The report also 
found that because infrastructure plans were not sufficiently 
coordinated with development plans, ``the State has allowed 
communities to extend sewer lines into areas that include 
wetlands, flood plains and other environmentally sensitive 
property.''
    State and local officials are largely responsible for 
reforming such economic incentives so that they favor smarter 
growth patterns rather than sprawl. Because the Federal 
Government plays a prominent role in the financing of water 
infrastructure, Congress is also partly responsible to ensure 
that funding for water infrastructure through the SRF solves 
existing water quality problems and complements, rather than 
conflicts, with ongoing State or local initiatives to manage 
growth. Federal funds should not create incentives for 
additional sprawl.
    This section requires applicants to demonstrate and 
document to the State that they will coordinate and consult 
with local land use plans, regional transportation improvement 
and long-range transportation plans, and State, regional and 
municipal watershed plans.
    This requirement will encourage communication at the local 
level so that local plans for water quality management are 
coordinated with local plans for managing growth. Encouraging 
coordination upfront will also prevent avoidable confrontations 
down the road; by making State or local agencies aware of 
issues under their jurisdiction early enough to resolve them 
before reaching the point of changes to a project whose SRF 
loan is already approved.
Sec. 103(g). Priority System Requirements

                                SUMMARY

    This section revises the existing priority list requirement 
in the Act to include not only treatment works, but also all 
eligible projects under the Act. This section also establishes 
the policy that projects should be funded to the maximum extent 
practicable in priority order.

                               DISCUSSION

    Section 603(g) of the Act establishes the priority list 
requirements for funding projects under a State SRF. Under 
current law, States may only fund projects that appear on the 
priority list and may do so in any order. States are only 
required to list treatment works projects. This practice 
emphasizes treatment works projects over other eligible 
projects such as those included in State 319 and 320 plans. 
This section revises the existing priority list requirement in 
the Act to include not only treatment works, but also all 
eligible projects under the Act.
    This change will not only require that States prioritize 
319 and 320 projects in the same system as treatment works 
projects, it will ensure that new categories of eligible 
projects added by S. 1961, such as conservation, reuse, 
recycling, reclamation, and security, also receive equitable 
consideration as States develop their priority list. This 
section does not preclude a State from listing small non-point 
projects as a single eligible project on the project priority 
list in cases where it would be impractical to identify each 
project individually.

Sec. 103(h). Additional Requirements for Water Pollution Control 
        Revolving Funds
    Section 103(h) has four main components. First, this 
section includes provisions for capacity development and 
financial management at treatment works. Second, this section 
includes provisions requiring the consideration of various 
restructuring options as conditions of receipt of assistance. 
Third, this section prohibits systems from receiving assistance 
under the SRF that are in significant non-compliance with the 
Clean Water Act. Fourth, this section provides grants to 
technical assistance to qualified nonprofit entities.

             CAPACITY DEVELOPMENT AND FINANCIAL MANAGEMENT

    When the SRF program was created under Title VI of the 
Clean Water Act Amendments of 1987, Congress established that 
these Federal funds would be used for the construction of water 
treatment facilities to comply with the requirements of the 
Act. Since its inception, the Federal role has been limited to 
the construction of wastewater facilities through the SRF with 
the expectation that facilities would adopt measures necessary 
finance operation and maintenance and capital replacement 
costs. Today, many facilities are requesting that the Federal 
Government expand its role by financing the repair and 
rehabilitation of facilities already in service, but nearing 
the end of their useful lives.
    Part of the intent of the ``capacity building'' provisions 
of the 1996 Safe Drinking Water Act Amendments was to help 
facilities develop long-term financial plans that account for 
the life cycle of infrastructure and capital replacement costs. 
With these plans, facilities utilize user fees, service rates, 
ad valorum taxes, and other revenue generating mechanisms to 
ensure a sustainable revenue stream for capital replacement 
with minimal Federal assistance. The committee intends for the 
capacity development section in this section to provide 
wastewater facilities with the tools necessary to reflect the 
true cost of service in their operations. These tools should 
also pre-empt extended Federal involvement in the financing of 
water infrastructure.
    All States have developed programs to address the capacity 
problems of drinking water systems under section 119 of the 
Safe Drinking Water Act amendments of 1996. In its report, 
Technical and Economic Capacity of States and Public Water 
Systems to Implement Drinking Water Regulations, EPA described 
the authorities that several States have adopted to ensure that 
new systems have capacity:
        A number of States are developing or implementing 
        programs to ensure the viability of new water systems. 
        In general, these States are requiring that their 
        proposed systems will be built over the long-run before 
        allowing the system to be built and operated. For 
        example, the States of Connecticut, Maryland, and 
        Washington use a permitting process to ensure that new 
        small systems comply with minimum design, operating, 
        and construction standards. These States also require 
        financial, operational, and management evaluations 
        before the installation of a proposed new system. An 
        additional approach to new system screening is to 
        require financially backed assurances or guarantees of 
        viability.
    During a legislative hearing on S. 1961 on February 26, 
2002, Ben Grumbles, Deputy Assistant Administrator for Water at 
EPA testified on the importance of building capacity.
        To meet . . . future challenges to clean and safe water 
        the Administration believes that the touchstone of our 
        strategy should be building fiscal sustainability. In 
        particular, several basic principles should guide our 
        pursuit of clean and safe water through fiscal 
        sustainability: Promoting sustainable systems 
        [requires] ensuring the technical, financial, and 
        managerial capacity of water and wastewater systems, 
        and creating incentives for service providers to avoid 
        future gaps by adopting best management practices to 
        improve efficiency and economies of scale, and reducing 
        the average cost of service for providers.
    Section 103(h) seeks to ensure that recipients of funds 
under the CWA SRF have the basic technical, managerial, and 
financial capacity to operate their system and make maximum use 
of SRF funds through basic financial management practices such 
as asset management planning. This section requires States to 
develop and implement a strategy to assist treatment works to 
attain and maintain technical, managerial, and financial 
capacity; and meeting and sustaining compliance with applicable 
Federal and State laws. Under section 103(d)(7) of this bill, 
States may provide up to 30 percent in loan subsidization, 
including principal forgiveness, to help facilities develop 
capacity.
    Asset management plans are an essential feature of capacity 
development. This section requires as a condition of receipt of 
funds under the SRF that water facilities receiving over 
$500,000 create and implement an asset management plan that 
includes an inventory of existing assets (including an estimate 
of the useful life of those assets), an optimal schedule of 
operations and maintenance, and estimate of the capital 
investment required to meet and sustain the performance 
objectives of the Act. EPA may provide information to assist 
States in determining the required content of asset management 
plans. These plans will help water facilities anticipate 
capital costs in the future and integrate those costs in budget 
plans and rate structures that reflect the actual cost of 
service.

     NONCOMPLIANCE--SECTION 603(I)(3)(C) (AS AMENDED IN THIS BILL)

    Treatment works that are found to be in significant 
noncompliance with the Clean Water Act are prohibited from 
receiving assistance other than for planning, design, or 
security. If a treatment works is in significant noncompliance 
with the Act but is in compliance with an enforceable 
administrative or judicial order to effect compliance with 
those requirements, that treatment works may receive SRF 
funding.
    The SRF funds projects to ensure compliance with the 
requirements of the Clean Water Act. The construction of 
additional water infrastructure at a water facility already in 
significant noncompliance with the Act will not ensure 
compliance with the Act nor will it remedy water quality 
problems.
    Section 603(i)(3)(C) states that facilities in significant 
noncompliance with the Act cannot receive SRF funding. This 
section will ensure that Federal funds prioritize the 
remediation of facilities in significant noncompliance. A 
facility may receive funding if the State determines that the 
assistance would enable the facility to take corrective action 
sufficient to remedy the violations on which the determination 
of significant noncompliance is based.
    Recognizing that some problems of significant noncompliance 
may involve comprehensive planning to estimate the cost of 
remediation, the provision makes an exception that facilities 
in significant noncompliance may receive funding for planning 
design or security. Facilities in significant noncompliance 
that have entered into enforceable administrative or judicial 
order to effect compliance may also receive funding. A 
compliance finding under this section includes a determination 
as to whether or not a facility is in compliance with 
applicable timelines.

                             RESTRUCTURING

    As part of the capacity development provisions, the bill 
integrates certain measures to ensure the environmental and 
financial sustainability of facilities using SRF funds. This 
section requires treatment works as a condition of receiving 
SRF funds to demonstrate and document to the State that it has 
considered certain restructuring measures. They must consider 
consolidating management functions, forming cooperative 
partnerships, and using methodologies that may be more 
environmentally sensitive. In addition, applicants receiving in 
the aggregate $500,000 or more must have in effect a plan to 
achieve, within a reasonable amount of time, a rate structure 
that to the maximum extent practicable, reflects the actual 
cost of service and addresses capital replacement funds.
    Part of the success of the capacity development provisions 
of the Safe Drinking Water Act amendments of 1996 is due to its 
emphasis on efficiency. Facilities were able to offer services 
at reduced costs with minimal capital investment. The 1996 
Amendments also promoted the consolidation of services with 
adjacent facilities in order to establish greater economies of 
scale. Improvements were particularly noticeable in small and 
rural communities where water facilities were rarely 
constructed with other service areas in mind.

                             CONSOLIDATION

    The physical consolidation of wastewater facilities is 
often not as practical or desirable as with drinking water 
facilities. In addition, some communities are concerned that 
consolidation could encourage inappropriate growth. If physical 
consolidation is inappropriate for a particular site, a 
treatment works can often realize greater value and operational 
efficiency by consolidating management or ownership of the 
facility. Some examples already in practice are: the 
consolidation of meter reading services between adjoining 
facilities, consolidating customer service or billing 
operations, or merging the ownership of adjacent facilities.

                        COOPERATIVE PARTNERSHIPS

    ``Forming cooperative partnerships'' as used in 
103(j)(1)(B) refers to the structure of a treatment work's 
management. Since the Drinking Water Act Amendments of 1996, 
the public water facilities in the drinking water market has 
begun to consider outsourcing, public-private partnerships, and 
privatization. In this transition, some systems have become 
more efficient and accountable by doing so.
    This condition will ensure that facilities consider these 
types of actions in the wastewater market. While this section 
does not mandate the adoption of restructuring or of any 
specific restructuring strategy, it might include the 
consideration of public restructuring, such as the regional 
operational coordination undertaken for both water and 
wastewater in the Washington, DC. metropolitan area. It also 
might include the outsourcing of specific operational tasks 
such as infrastructure repair, meter reading, or billing. A 
community may also determine to privatize a facility. ``Forming 
cooperative partnerships'' might include operational 
restructuring such as cooperative agreements on financing, 
design, and construction, buying and operating. It might 
involve cost-saving transactions such as asset transfers, lease 
arrangements, outsourcing service contracts or management 
contracts. This provision does not favor any restructuring 
arrangement over any other.

                ENVIRONMENTALLY SENSITIVE METHODOLOGIES

    Since the last reauthorization of the Clean Water Act in 
1987, there have been many advances in wastewater treatment 
technologies. Some technologies permit facilities to realize 
equal or greater effluent treatment levels while leaving a 
lower environmental footprint. Many do so at a lower unit cost. 
One example is a 20-acre industrial site next to the Willamette 
River in Portland, OR redeveloped for a new science museum in 
the 1990's. The plans called for a 6-acre parking lot covering 
50 percent of the site surface. Since impervious surfaces would 
contribute to Portland's already serious stormwater runoff 
problem, the city asked the museum to make modest design 
changes. The museum agreed as long as their costs would not 
increase.
    By changing the design and grade of the planned landscape 
the museum created ``mini wetlands'' and planted them with 
native vegetation. This natural infiltration system exceeded 
expectations. The mini wetlands capture and filter all runoff 
from the parking lot. The only discharge into the city's storm 
sewer system and into the river occurs during rare ``extreme'' 
rainfalls. Visitors and neighbors frequently comment on this 
aesthetic enhancement to the museum which actually saved 
$78,000 in construction costs for piping, trenching and 
manhole. Other examples could include those methods described 
in the ``Approaches'' provision in 103(c)(3) of this Act.
    The provision requiring treatment works to demonstrate that 
they have considered using methodologies or technologies that 
may be more environmentally sensitive will ensure that these 
non-traditional approaches to wastewater issues receive 
consideration.

                            RATE STRUCTURES

    Wastewater treatment works typically maintain their revenue 
streams for capital replacement and operation and maintenance 
through a rate structure charged to users. However, the 
decision to raise rates to levels consistent with the capital 
needs of a system to replace, repair, or upgrade infrastructure 
is often politically difficult to implement. As a result, many 
systems are now facing replacement costs that cannot be met 
through revenues from rate structures.
    This bill requires that systems receiving $500,000 or more 
from the SRF, as a condition of receipt of funds, have in place 
or have a plan in place to achieve in a reasonable period of 
time, a rate structure that reflects the actual cost of service 
provided by the treatment works and addresses capital 
replacement funds. Together with the asset management plan 
required by this section, the rate structure requirement seeks 
to provide a performance measure that will encourage wastewater 
facilities to manage their capital assets effectively, 
developing a rate structure that reflects the true cost of 
service in their operations, allowing them to repair and 
replace existing infrastructure without additional Federal 
assistance. This will limit the long-term involvement of the 
Federal Government in this type of work and ensure that Federal 
dollars dedicated to the SRF can eventually focus again on 
addressing clean water needs rather than basic capital costs.

                               EXCEPTION

    There are some activities eligible for funding under the 
SRF that are, like the conditions for receipts of assistance, 
designed to improve the financial and environmental 
sustainability of the treatment works before construction 
begins. The committee recognizes that these conditions for 
receipt of assistance will be most effective in more 
comprehensive construction projects. Therefore, assistance for 
planning, design, security measures that do not result in 
significant capital expenditures, and preconstruction 
activities are exempt from the provisions of section 103(h).

    TECHNICAL ASSISTANCE FOR SMALL SYSTEMS (AMENDMENTS TO 603(L)(1))

    This section includes a $7 million authorization for 
technical assistance to small systems serving less than 3,300 
people located in a rural area. Under this grant program EPA 
may make grants to qualified nonprofit technical assistance 
providers that provide technical assistance on a broad range of 
approaches for use in planning, developing, and obtaining 
financing for projects described in subsection (c) of the Act 
to small, rural systems. The committee intends for rural 
community assistance programs (RCAPs) to be eligible to receive 
funding under this section.
Sec. 103(i) Allotment of Funds

                                SUMMARY

    Section 103(i) establishes a revised formula that moves 
from the current system to one based on the most recent needs 
survey conducted under section 516(2) of the Clean Water Act 
using Categories I-VI. It requires that if the needs of private 
utilities are included in a State's needs survey they will be 
eligible for funding under the State's SRF program.

                               DISCUSSION

    Under current law, EPA allots SRF capitalization grants 
among the States according to a statutory formula. The current 
formula, enacted in section 205(c)(3) of the 1987 Water Quality 
Act, is based on information from the 1970's on financial need 
for sewage treatment plant construction and on population. 
Since the first statutory formula was adopted in P.L. 92-500, 
Congress has modified the formula five times. The factors of 
the formula and the weight given to various categories of 
eligible wastewater projects have changed. However, despite the 
fact that States have reported infrastructure needs every 4 
years since 1972, the current formula is still based in large 
part on from the 1970's.
    In recognition of the disparity that has developed with the 
use of such out-dated information, section 103(i) establishes a 
revised formula that moves from the current system to one based 
on the most recent needs survey conducted under section 516(2) 
of the Clean Water Act using Categories I-VI. These categories 
are part of the formula because EPA has a high level of 
confidence in the quality of data for all States.
    Shifting too quickly from the current formula to a new 
allotment based solely on need could result in disruptions in 
some States. To cushion potential disruptions, the formula 
transitions incrementally from the current system to one based 
on the needs survey. This is accomplished by utilizing a 
formula that mixes steadily increasing percentages of the 
formula based on needs with steadily decreasing percentages of 
the current formula.
    The needs formula is based on the most recent EPA clean 
water needs survey taking into account categories I-VI. The 
needs formula provides that no State will receive less than 0.7 
percent of the sums allotted, increasing the small-State 
minimum that exists in the current formula. Funds not devoted 
to States receiving the 0.7 percent minimum are allotted to the 
remaining States according to the percentage proportional to 
their share of need as expressed in the most recent needs 
survey.
    In any year, 1.5 percent of the fund is set-aside to fund 
Indian water programs, and up to $1 million may be set-aside 
for EPA to administer the needs survey. The remaining funds are 
allotted to the States. Of the remaining funds allocated to the 
States, 0.25 percent is allocated to Guam, The United States 
Virgin Islands, American Samoa, and the Commonwealth of the 
Northern Mariana Islands at the discretion of the 
Administrator. Any funds appropriated above $1.35 billion, the 
funding level since fiscal year 1998, are allocated according 
to the needs formula.
    Depending on the sum of money appropriated and the results 
of the needs survey to be completed in the fall of 2002, values 
of the mixing factors can proceed in two ways. One based on 
definite mixing factors completing the transition in 5 years or 
one based on indefinite mixing factors completing the 
transition in an indefinite number of years.
    The first test applied to funds for capitalization grants 
to States mixes definite percentages of the current formula 
with the needs formula. In fiscal year 2003, EPA allocates 50 
percent of funds according to the current formula and 50 
percent according to the needs formula. In fiscal year 2004, 
EPA allocates 37.5 percent of funds according to the current 
formula and 62.5 percent according to the needs formula. In 
fiscal year 2005, EPA allocates 25 percent according the 
current formula with 75 percent according to the needs formula. 
In 2006, EPA allocates 12.5 percent according to the current 
formula and 87.5 percent according to the needs formula. 
Finally in 2007, EPA allocates all funds according to the needs 
formula.
    If, in any fiscal year under the first test, a State would 
receive more than a 20 percent increase or a 20 percent 
decrease in funding in comparison to that State's allocation 
the previous fiscal year, the transition proceeds as follows. 
The State that, in a fiscal year, gains or loses the maximum 
percentage of funding will direct the mixing factors of current 
formula and needs formula. To determine the mixing factors for 
a year, EPA will mix the maximum percentage of needs formula 
possible that does not cause the State with the maximum 
percentage change to gain or lose more than 20 percent of its 
funding. EPA will calculate the mixing percentages in 
subsequent fiscal years according to the same test in relation 
to the previous fiscal year until 100 percent of the needs 
formula is in use.
    Even with the transition mechanisms built into this 
formula, small States experience more hardship with funding 
losses that larger States. In order to provide some protection 
for small States, the formula contains an exception to protect 
them. If, over the entire transition, a State receiving greater 
than 1 percent of funding under the current formula would 
receive the 0.7 percent minimum under the needs formula, that 
State is held harmless at 1 percent of funds.
    The mathematical representation of the formula that would 
indicate a States allocation in a given year under the 
transition formula is as follows:

                    AN=(((%FC*AS)*%C))+((%FN*AS)*%N)

  PROVIDED THE ABSOLUTE VALUE OF PERCENTS IS NOT GREATER THAN 20 WHERE

        AN = A STATE'S FUNDING ALLOCATION IN A GIVEN FISCAL YEAR

           %FC = THE PERCENTAGE VALUE OF CURRENT FORMULA USED

*AS = THE APPROPRIATION MADE AVAILABLE TO STATES IN A FISCAL YEAR AFTER 
SETTING ASIDE FUNDING FOR INDIAN WATER PROGRAMS AND THE CREATION OF THE 
                              NEEDS SURVEY

 %C = THE PERCENT OF FUNDING A STATE RECEIVES UNDER THE CURRENT FORMULA

  %FN = THE PERCENTAGE VALUE OF NEEDS FORMULA USED (ASSUMING THE MOST 
                          RECENT NEEDS SURVEY)

  %N = THE PERCENT OF FUNDING A STATE RECEIVES UNDER THE NEEDS FORMULA 
              (ASSUMING THE MOST RECENT NEEDS SURVEY), AND

     %S = THE VALUE OF THE PERCENT CHANGE IN FUNDING FOR THE STATE 
 EXPERIENCING THE GREATEST PERCENT CHANGE IN FUNDING IN COMPARISON TO 
                        THE PREVIOUS FISCAL YEAR

      

                 PRIVATE UTILITIES AND THE NEEDS SURVEY

    The committee recognizes the valuable public good private 
utilities provide in the wastewater treatment market. Most 
privately owned wastewater systems are very small, such as 
those in trailer parks. These facilities are very much in need, 
and are currently excluded from funding under the SRF. In order 
to put private utilities on even footing with publicly owned 
treatment works, section 103(j) requires States to make private 
utilities eligible for funding under the SRF if the State 
identifies the needs of that private utility in the needs 
survey. This is already permitted under the Safe Drinking Water 
Act.
Sec. 103(j) Reservation of Funds for Planning
    This section increases from 1 to 2 percent the amount of 
funds that States may reserve from their capitalization grant 
for planning.
Sec. 103(k) Audits, Reports, and Fiscal Controls; Intended Use Plan
    Section 103(k) requires States to publish yearly an 
intended use plan, which outlines projects listed on the 
priority list (as modified by this bill) that the State will 
fund through the SRF. Second, section 103(k)(2) requires States 
submit annual reports to the Administrator of the EPA on the 
success in implementing the capacity development provisions of 
this Act.
Sec. 103(l). Authorization of appropriations
    Section 103(l) authorizes a total of $20 billion to carry 
out Title I. In fiscal years 2003 and 2004, it authorizes $3.2 
billion, $3.6 billion in 2005, $4 billion in 2006, and $6 
billion in 2007. It allows EPA to use not more than $1 million 
per year to conduct needs surveys.
Sec. 104. Sewer Overflow Control Grants Section
    Given the acute environmental and public health threat of 
sewer overflows, Congress passed a bill to authorize CWA grant 
funding for wet weather sewerage projects as a provision of the 
FY2001 Consolidated Appropriations bill, P.L. 106-554. Section 
104 of this bill reauthorizes those grants and raises the 
appropriation to $750 million for fiscal years 2002 and 2003 
and to $250 million for fiscal years 2004 to 2007.

            Title II--Safe Drinking Water Act Modifications

    The bill makes fewer refinements to the Safe Drinking Water 
Act. Many of the changes included in Title I of the bill to the 
Clean Water SRF program are based on the successes of recent 
amendments to the Safe Drinking Water Act.
Sec. 201. New York City Watershed Protection Program

                                SUMMARY

    This provision reauthorizes the New York City Watershed 
Protection Program to 2010 and increases the authorized funding 
level from $15 million to $25 million.

                               DISCUSSION

    Congress originally authorized the New York City Watershed 
Protection Program in the Safe Drinking Water Act (42 U.S.C. 
300j-2). Under this program, the EPA Administrator is 
authorized to provide assistance to the State of New York for 
protection and enhancement of the quality of source waters of 
the New York City water supply system. The reauthorization 
would provide $25 million a year for this program through 2010, 
with Federal funds not to exceed 50 percent of the total cost 
of any project funded through the program.
    New York City is the largest water system in the country 
that has been granted a filtration avoidance determination 
(FAD). In May 1997, after many months of negotiations with New 
York State, New York City, environmental groups and upstate 
communities, stakeholders agreed on a comprehensive watershed 
protection program that was memorialized in a historic 
Memorandum of Agreement. With the agreement in place, EPA 
issued a 5-year filtration avoidance determination to New York 
City. The watershed protection program, overseen directly by 
EPA, includes requirements to:

      acquire environmentally sensitive land in the 
watershed;
      adopt strict watershed rules and regulations; and
      upgrade sewage treatment plants that discharge 
into source waters.

    This program is significantly more cost effective than the 
construction of a filtration plant for the Catskill-Delaware 
watershed, which is estimated to cost $6 to $8 billion. The 
Catskill-Delaware watershed supplies about 90 percent of New 
York City's water supply. This system covers approximately 
1,600 square miles with a population of around 77,000 year 
round.
Sec. 202. Labor Standards

                                SUMMARY

    Section 202 of the bill clarifies that the Davis-Bacon Act 
requirements that ``laborers and mechanics be paid at wages not 
less than the prevailing wage'' applies to all projects 
financed by State Revolving Funds supported by Federal 
capitalization grants.

                               DISCUSSION

    As enacted in 1974, the Safe Drinking Water Act included in 
section 1450(e) a broadly worded provision that directs the EPA 
to ``take such action as may be necessary to assure compliance 
with the Act of March 3, 1931 (known as the Davis-Bacon Act). 
This requirement provides that all laborers and mechanics 
employed by contractors or subcontractors on treatment works 
for which grants are made under this Act for shall be paid 
wages at rates not less than those prevailing for the same type 
of work on similar construction in the immediate locality.
    With the enactment of the 1996 amendments, there was no 
separate Davis-Bacon provision to instruct EPA how to treat 
funds within the new Drinking Water SRF program. At that time, 
it was assumed that including such a provision was unnecessary 
as the Davis-Bacon provision of the 1974 Act was considered to 
be sufficiently broad to cover all construction projects 
supported by SRF's with funds directly made available from 
Federal capitalization grants or with ``recycled'' funds made 
available by repayment of Federal capitalization grant funds. 
However, since that time, the Administrator of the EPA has 
interpreted that the Davis-Bacon prevailing wage requirements 
in the Act does not cover all construction projects supported 
by SRFs.
    In the long term, this interpretation would undermine the 
policy of assuring all public workers at projects supported by 
Clean Water Act grants to be paid no less than the prevailing 
wage as the Davis-Bacon Act mandates. And in the short term, it 
would create significant new complexity, as it would be 
necessary to distinguish projects supported by new Federal 
contributions from projects supported by ``recycled'' 
contributions.
    Therefore, section 202 clarifies that ``all laborers and 
mechanics employed by contractors and subcontractors on 
projects financed, in whole or in part, by a grant, loan, loan 
guarantee, refinancing, or any other form of assistance 
provided under this title'' are paid no less than the 
prevailing wage. This will assure that the Davis-Bacon Act will 
apply to all forms of funding provided by the Act.
    This section amends section 1450(e) of the Act to provide 
that Davis-Bacon prevailing wage requirements applies to any 
project financed by a State drinking water revolving loan fund 
under title XIV. As a result, the Davis-Bacon prevailing wage 
requirement will apply to all projects financed by federally 
capitalized SRF's, including projects financed by funds repaid 
into the SRF and then lent to support additional construction 
projects.
    This section further clarifies the types of assistance 
covered by the Davis-Bacon Act. This section states that in 
addition to grants made available under this title, Davis-Bacon 
applies to ``loans, loan guarantees, refinancing, or any other 
form of assistance provided under this Title.
Sec. 203. Planning, Design, and Preconstruction Costs

                                SUMMARY

    Section 203 states that preconstruction costs including 
``planning, design, and associated preconstruction expenditures 
and projects for consolidation among community water systems'' 
are eligible for funding under the Drinking Water SRF as 
standalone items.

                               DISCUSSION

    By clarifying that pre-construction activities are eligible 
for funding, this provision encourages treatment works to take 
the opportunity to rationally evaluate the financial resources 
necessary to implement construction. This section may include 
the funding of pre-construction costs as a stand-alone cost. 
This section may also encompass an integrated construction 
strategy such as design-build and design-build-operate. Under 
these agreements, municipalities enter into agreements with a 
single contractor to assume responsibility for the pre-
construction, construction, and in some cases the operations of 
a facility. By making a long-term financial commitment to a 
single contractor, municipalities can receive more favorable 
contract terms and realize better value on their investment. 
This provision will ensure that small communities with few 
resources available to develop a project in its early stages 
can receive assistance for pre-construction costs.
    The physical consolidation of drinking water treatment 
works can enable better value through larger economies of 
scale. Since the Drinking Water Act amendments of 1996, many 
drinking water facilities have undergone consolidation to 
better meet the compliance requirements of the Act. This 
section clarifies that costs associated with projects for 
consolidation among community water systems are eligible for 
funding as standalone items.
Sec. 204. State Revolving Loan Fund

                         REGIONAL PARTNERSHIPS

    Section 204(a) modifies the existing restructuring section 
in the SDWA to clarify that the definition of feasible and 
appropriate changes in operations includes the formation of 
regional partnerships. Regional partnerships are an innovative 
way to stretch local and Federal dollars and provide an 
incentive for voluntary regional partnerships among water 
systems.
    Regional partnerships attempt to capitalize on the 
collective resources of water systems in a region even if there 
are a wide variety of capabilities among the systems. Many 
water systems face constraints in different areas, including 
financial, technical, operational and managerial limits unique 
to each provider. These constraints can force systems to 
minimize expenditures for needed work. This contributes to 
long-term declines in service and in some cases weaker public 
health protection.
    A partnership may include physical infrastructure 
connection among utilities of various sizes near each other. 
Partnerships may also involve a financial, managerial or 
technical support connection among utilities regardless of 
distance from one another. Or, it may involve a combination of 
both. As an example, the Contra Costa Water District, which 
serves 450,000 people in the area around Concord, California, 
is working with four other local water entities in a variety of 
partnerships, ranging from measures to lower the cost of water 
to engaging in cooperative agreements to obtain new supplies 
and developing needed infrastructure. One successful 
partnership, involving three agencies, provided an alternative 
water supply that saved the local agencies more than 
$13,000,000. In a second instance, ten water and sanitation 
agencies came together to conduct a water supply and 
infrastructure study that focused on the region, rather than 
the boundaries of each agency, thereby providing a more 
beneficial plan for the region as a whole.
    Partnerships should provide maximum flexibility, so that 
local providers can find the best solution for their own unique 
needs. Potential forms of partnerships might include: operating 
agreements, engineering and construction contracts, long-term 
contracts, consolidation, asset transfers, or even formation of 
new entities.

                      SIGNIFICANT PUBLIC OUTREACH

    Section 204(b) states that in addition to seeking public 
comment and review in the creation of the intended use plan, 
States must also engage in significant public outreach. In the 
absence of significant public outreach, the intended use plan 
de-emphasizes the funding of non-traditional projects to 
address water quality. In some cases, the current system has 
excluded groups from the opportunity to provide input in the 
creation of the priority list and the intended use plan.
    In one example, Tennessee PEER (Tennessee Public Employees 
for Environmental Responsibility), an environmental group lead 
by public employees, was systematically excluded form the 
public review and comment process.
    The city of Spencer obtained $6.2 million in Federal/State 
SRF funds to discharge wastewater into Dry Fork Creek, over the 
strenuous objections of groups in Tennessee including PEER. The 
Dry Fork, downstream of this new discharge, flows through a 
State park and runs underground through a fragile cave system, 
home to two rare species of fish. Studies also showed that the 
new wastewater treatment plant would pollute springs used for 
drinking water downstream.
    According to TN-PEER, the Tennessee Department of 
Environment and Conservation determined there were no 
significant environmental issues or major changes in land use 
as a result of the project, and therefore, no Environmental 
Impact Study (EIS) was needed under NEPA. The only public 
notice for the proposed permit was a misleading two-liner 
describing an existing facility, sent out to a very limited 
mailing list. No notice was published locally; no hearing was 
held.
    The Spencer project is an egregious, but not uncommon 
example, of environmental harm done by projects with no public 
input and inadequate oversight. With more comprehensive public 
input through significant public outreach, project 
implementation will more closely reflect the wishes of the 
communities they serve. Innovative and non-traditional projects 
will also receive equal consideration along side traditional 
projects. The committee expects that States will ensure that 
individuals or groups that should have input into the creation 
of the intended use plan be contacted to participate in its 
creation. Significant public outreach includes contacting such 
individuals or groups directly. Placing public notices and 
holding public meetings would be necessary but insufficient 
measures to satisfy this provision.
Sec. 204(c). Flexibility in Loans and Assistance to Disadvantaged Users
    This section amends Section 1452 of the Safe Drinking Water 
Act to integrate the flexibility, conditions for receipt of 
funds, and restructuring elements of the Title I amendments of 
this bill into the SRF provisions of the SDWA.
    This section allows States to extend a loan term from a 
maximum of 20 years to a maximum of 30 years as long as that 
does not exceed the life of the project. For disadvantaged 
communities, this section permits the State to extend loan 
terms up to 40 years, as long it does not exceed the life of 
the project. Extending the amortization time of SRF loans may 
prolong the amount of time before State funds revolve with 
their own funds. The committee expects that States will balance 
the extension of more flexible loan terms with the need to have 
a strong corpus of funds revolving in the SRF.
    A particular concern raised during the committees hearings 
was the apparent gap in the State's ability to provide loan 
subsidization to communities that are not disadvantaged as a 
whole but include populations. The concern was raised that 
these communities cannot necessarily raise rates in order to 
fund capital construction due to the negative impact that would 
have on the disadvantaged users in their communities. To help 
combat this situation, this section allows States to provide 
loan subsidization, including principal forgiveness, to a non-
disadvantaged community if the community demonstrates that the 
benefit of that subsidy is being directed to disadvantaged 
users in their community. Funds used in this manner are limited 
to 15 percent of a State's annual capitalization grant. This 
provision should prove particularly beneficial in large 
municipalities where wide variation in residential incomes may 
exclude a city from participating in State assistance programs 
designed for disadvantaged communities.
Conditions on Assistance

                                SUMMARY

    Part of the success of the capacity development provisions 
of the Safe Drinking Water Act amendments of 1996 is due to its 
emphasis on efficiency. With the restructuring that accompanied 
the capacity requirement, facilities were able to offer 
services at reduced costs with minimal capital investment. The 
Amendments of 1996 promoted the consolidation of services and 
structures with adjacent facilities in order to establish 
greater economies of scale. Improvements were particularly 
noticeable in small and rural communities where water 
facilities were rarely constructed with other service areas in 
mind.
    The Safe Drinking Water Act originally integrated the 
concept of technical, financial, and managerial capacity in 
Section 1452(a)(3)(A)(i) stating that ``no assistance under 
this title shall be provided to a public water system that does 
not have technical, financial, and managerial capacity to 
ensure compliance with this title.'' The bill integrates proven 
methodologies of building capacity that will ensure the 
environmental and financial sustainability of facilities using 
Federal funds under the SRF.
    A public water system receiving assistance under a State 
SRF is required as a condition of receipt of funds to 
demonstrate and document to the State that it has considered 
certain restructuring measures. They must consider 
consolidating management functions, forming cooperative 
partnerships, and using methodologies that may be more 
environmentally sensitive.
    Applicants receiving in the aggregate $500,000 or more must 
have in effect a plan to achieve, within a reasonable amount of 
time, a rate structure that to the maximum extent practicable, 
reflects the actual cost of service and addresses capital 
replacement funds. Those applicants must also have in effect an 
asset management plan. Applicants receiving in the aggregate, 
less than $500,000 are not required to meet these conditions to 
receive funds under the SRF.

                               DISCUSSION

Consolidation of management
    Public water systems can realize greater value and 
operational efficiency by consolidating management or ownership 
of the facility. Some examples already in practice are: the 
consolidation of meter reading services between adjoining 
facilities, consolidating customer service or billing 
operations, or merging the ownership of adjacent facilities.
Cooperative Partnerships
    ``Forming cooperative partnerships'' as used in 204(c) 
refers to the structure of a treatment work's management. Since 
the Safe Drinking Water Act Amendments of 1996, there has been 
a general shift in the drinking water market from public 
ownership of facilities to a greater emphasis on outsourcing, 
public-private partnerships, and privatization. In this 
transition, water systems have become more efficient and 
accountable.This condition will ensure that facilities consider 
these types of actions in the drinking water market. While this 
language does not mandate the adoption of restructuring or of 
any specific restructuring strategy, it might include public 
restructuring, such as the regional operational coordination 
undertaken for both water and wastewater in the Washington, DC 
metropolitan area. It might include the outsourcing of specific 
operational tasks such as infrastructure repair, meter reading, 
or billing. If a community determines it wishes to do so after 
considering its available restructuring options, forming 
cooperative partnerships might also include the privatization 
of a facility. It might include operational restructuring such 
as cooperative agreements on financing, design, construction, 
buying and operating. It might involve cost-saving transactions 
such as asset transfers, lease arrangements, outsourcing 
service contracts or management contracts. This provision does 
not imply favoritization of private or public structures.
Environmentally Sensitive Methodologies
    Since the last reauthorization of the Safe Drinking Water 
Act in 1996, there have been many advances in drinking water 
treatment technologies. Some technologies permit facilities to 
realize equal or greater treatment levels while leaving a lower 
environmental footprint or presenting a lower security hazard. 
Under this condition, water facilities are required as a 
condition of receipt of assistance to consider using 
methodologies or technologies that may be more environmentally 
sensitive.
Rate Structures
    Drinking water treatment facilities typically maintain 
their revenue streams through a rate structure charged to their 
customers. However, the decision to raise rates to levels 
consistent with the capital needs of a system to replace, 
repair, or upgrade infrastructure can be politically difficult 
to implement. As a result, many systems are facing capital 
replacement costs that they are unable to fund through revenues 
from their rate structure.
    This bill requires that systems receiving $500,000 or more 
from the SRF, as a condition of receipt of funds, have in place 
or have a plan in place to achieve in a reasonable period of 
time, a rate structure that reflects the actual cost of service 
provided by the treatment works and addresses capital 
replacement funds. Together with the asset management plan 
required by this section, the rate structure requirement seeks 
to provide a performance measure that will encourage drinking 
water facilities to manage their capital assets effectively, 
developing a rate structure that reflects the true cost of 
service in their operations, allowing them to repair and 
replace existing infrastructure without additional Federal 
assistance. This will limit the long-term involvement of the 
Federal Government in this type of work and ensure that Federal 
dollars dedicated to the SRF can eventually be focused again on 
addressing Federal mandates rather than the basic capital costs 
of having a water or wastewater system.
Exception
    There are some activities eligible for funding under the 
SRF that are, like the conditions for receipts of assistance, 
designed to improve the financial and environmental 
sustainability of the water system before construction begins. 
The committee recognizes that these conditions for receipt of 
assistance will be most effective in more comprehensive 
construction projects. Therefore, assistance provided for 
planning, design, and security measures that do not result in 
significant capital expenditures, and preconstruction 
activities are exempt from the restructuring requirements of 
204(c).
Sec. 204(d). Consultation and Coordination with State Agencies
    Commercial and residential development requires substantial 
infrastructure to support it. It requires investment from the 
public sector for roads, water lines, school, and public safety 
resources as well as private infrastructure such as power and 
telephone lines.
    Partly in response, State and local governments have 
developed infrastructure-related tools for managing growth. For 
example, local officials may establish urban service areas, 
adopt adequate public facilities ordinances, levy impact taxes 
or fees, or use similar mechanisms to internalize the true 
economic costs of new development. In addition, an increasing 
number of States have recently enabled or required local 
jurisdictions to manage land more efficiently through the 
designation of growth areas or application of State criteria 
for funding infrastructure.
    Usually costing of millions of dollars per mile, capital 
investments in new water infrastructure are some of the most 
expensive form of public infrastructure needed to support 
development. Drinking water treatment plants often cost 
millions of dollars each, and water lines cost several hundred 
thousand dollars per mile, costs that are not insignificant. 
Moreover the costs of operation and maintenance of 
infrastructure are substantial and continuing.
    State and local officials are largely responsible for 
reforming such economic incentives so that they favor smarter 
growth patterns rather than sprawl. Because the Federal 
Government plays a prominent role in the financing of water 
infrastructure, Congress is also partly responsible to ensure 
that funding for water infrastructure through the SRF solves 
existing water quality problems and complements rather than 
conflicts with ongoing State or local initiatives to manage 
growth.
    Water infrastructure plans which are not coordinated with 
existing local development plans may place the Federal 
Government in the position of subsidizing development patterns 
of excessive or uncontrolled growth. In order to address this 
concern, section 204(d) requires applicants to demonstrate and 
document to the State they have coordinated and consulted with 
local land use plans, regional transportation improvement and 
long-range transportation plans, and State, regional and 
municipal watershed plans.
Sec. 204(e). Source water protection programs

                                SUMMARY

    Section 204(e) of the bill amends section 1452(k) of the 
Act to clarify that source water protection programs are an 
eligible expense under the Safe Drinking Water SRF.

                               DISCUSSION

    Source water is untreated water from streams, rivers, 
lakes, or underground aquifers which is used to supply private 
wells and public drinking water. To ensure public health 
protection, the Safe Drinking Water Act provides multiple 
mechanisms for the protection of source water. Section 1452(k) 
of the Safe Drinking Water Act currently specifies that 
wellhead protection programs be authorized. This language 
clarifies that development and implementation of all source 
water protection programs are eligible expenses as well as 
wellhead protection programs.
Sec. 205. Additional Subsidization
    A particular concern raised during the committee's hearings 
was the apparent gap in the State's ability to provide loan 
subsidization to communities with populations of disadvantaged 
users that are not disadvantaged as a whole. Disadvantaged 
users in these communities might not be able to afford a rise 
in rates that would accompany new construction. To help address 
this concern, this section allows States to provide loan 
subsidization, including principal forgiveness, to a non-
disadvantaged community if the community demonstrates that the 
benefit of that subsidy is being directed to disadvantaged 
users in their community. Funds used in this manner are limited 
to 15 percent of a State's annual capitalization grant. This 
provision should benefit large municipalities where residential 
incomes vary widely and may exclude an area from participating 
in State assistance programs designed for disadvantaged 
communities.
    In order to meet the demonstration requirement in this 
provision, a community is required to ``demonstrate and 
document'' to the State that the subsidization will be 
directed, to the maximum extent practicable, through the user 
charge rate system, or similar program, to disadvantaged users 
within the residential user class of the community in which the 
treatment works is located. States have the discretion to 
identify disadvantaged users through existing lists such as, 
but not limited to, those from State or Federal social 
programs, LIHEAP, or those generated from voluntary responses 
from disadvantaged individuals. EPA is authorized to provide 
information to assist States in identifying disadvantaged 
users.
Sec. 206. Private Utilities

                                SUMMARY

    As amended in section 103(j) of this bill, section 206 
States that if a State elects to include the needs of private 
utilities in the needs survey, the private utility shall be 
eligible to receive funds under this title.

                               DISCUSSION

    The 1996 Amendments to the Safe Drinking Water Act made 
both publicly owned and privately owned systems eligible for 
financial assistance. Several States have restrictions against 
providing assistance to privately owned systems. This provision 
would require that States fund privates if they include their 
needs in the Drinking Water Needs Survey.
Sec. 207. Technical Assistance for Small Systems and Environmental 
        Finance Centers
    Small water systems have had particular difficulty in 
meeting the capacity development and compliance requirements of 
the 1996 Amendments to the Safe Drinking Water Act. To assist 
small systems develop capacity the 1996 amendments established 
two assistance programs for small systems: the small public 
water systems technology assistance centers, and Environmental 
Finance Centers.
    Small public water systems technology assistance centers 
provide significant assistance to State and local governments 
in the development of programs to address special concerns 
relating to the water systems of rural communities and Native 
Americans. The centers focus on the development of management 
strategies to ensure the availability and sustainability of 
small public water facilities serving those communities. This 
section authorizes $6 million per year until fiscal year 2007 
to be distributed to the centers.
    Environmental Finance Centers are a network of existing 
support centers that offer capacity development studies, 
training, and technical assistance. The Environmental Finance 
Centers also offer a clearinghouse of information on capacity 
development. These centers specialize in identifying water 
facilities that do not have the capacity to meet the 
requirements of the Act and assist those centers to develop 
capacity. This bill authorizes $2 million for each fiscal year 
until 2007.
Sec. 208 Authorization of Appropriations
    Section 208 authorizes for appropriation $20 billion for 
the Safe Drinking Water SRFs from fiscal year 2003 to 2007. The 
annual authorization rises progressively starting at $1.5 
billion in fiscal year 2003 up to $6 billion in 2007.

        Subtitle B--Small Public Water System Assistance Program

                                SUMMARY

    The legislation includes a new grant program to help small 
and other communities provide safe drinking water. This 
subtitle was included in this legislation as recognition that 
both small communities and larger rapidly urbanizing 
communities are facing significant new costs in providing 
clean, affordable drinking water to the public. While 
compliance costs with the anticipated Federal standard for 
arsenic spurred the committee's approval of this subtitle, 
grants under the program are not restricted to particular 
contaminants such as arsenic. Rather, the program is intended 
to apply broadly to compliance costs associated with the 
provision of safe drinking water.

                               DISCUSSION

    While communities of all sizes and in all parts of the 
Nation face a crisis in drinking water infrastructure, a 
particularly great burden is placed on small communities and 
communities in rapidly urbanizing areas. For example, the per-
household costs for water infrastructure improvements are 
almost four times higher for small systems than for larger 
ones. One reason for this disproportionate impact is that small 
public water systems are so numerous--representing nearly 95 
percent of all systems. This is particularly the case in 
Nevada, New Mexico, Montana and Arizona. In Nevada, for 
example, upwards of 98 percent of public water systems are 
small. In addition, because small communities lack the tax base 
and economies-of-scale of larger ones, they typically incur 
much higher per-household costs in upgrading their drinking 
water infrastructure. Rapidly urbanizing areas in the West face 
different, but also significant challenges in providing safe, 
affordable drinking water.
    The new grant program authorized by this subtitle provides 
that the Administrator shall both establish and administer the 
new program by July 1, 2003. This subtitle provides that grants 
afforded under the program shall be used to ensure compliance 
with drinking water standards and to ensure the provision of 
safe, affordable drinking water. The legislation particularly 
directs the Administrator to prioritize grants provided 
pursuant to this new program according to those projects which 
would address the most serious risks to human health due to 
lack of compliance with drinking water standards, those which 
are necessary to ensure compliance with such standards, and 
those which would assist communities most in need.
    However, the Administrator may not make grants for the 
purpose of increasing the population served by a public water 
system. This provision was included in legislation to avoid the 
potentially sprawl-inducing effects of such grants.
    The legislation specifies entities eligible to receive 
grants. It further provides that such entitles shall provide at 
least 20 percent of the costs of the overall project for which 
the Federal grant is made. Eligible entities include and are 
limited to: small public water systems, disadvantaged 
communities or communities that may become disadvantaged due to 
drinking water compliance costs, or public water systems 
incurring a significant increase in compliance costs of a 
specified amount. For the purposes of this grant program, small 
public water systems are defined as systems serving a 
population of less than 15,000 or fewer individuals. In 
addition, several counties in Nevada, New Mexico and Arizona 
are specifically designated as proper grant recipients due to 
documented and significant compliance costs associated with the 
anticipated Federal arsenic standard.
    Finally, this subtitle provides a similar grant program to 
assist Indian Tribes comply with drinking water standards and 
provide safe, affordable drinking water. These provisions 
mirror the small community grant program provisions discussed 
above.

      Title III--Innovations in Fund and Water Quality Management

Sec. 301. Definitions
    This section defines key terms used in Title III including: 
``Administrator'', ``municipality'', ``Public water system'', 
``State'', and ``treatment works''. All terms are defined to be 
consistent with existing law.
Sec. 302. Demonstration Grant Program for Water Quality Enhancement and 
        Management

                                SUMMARY

    This title establishes a water quality demonstration grant 
program within the Environmental Protection Agency (EPA) to 
promote innovative technologies and reduce costs of complying 
with the Clean Water and Safe Drinking Water Acts.

                               DISCUSSION

Innovative Technologies
    Congress has recognized the importance of using innovative 
technologies in water quality management, both in terms of 
funding research into possible new technologies and in 
demonstrating existing (but relatively new) technologies. In 
the 1977 Clean Water Act amendments, Congress established a 3-
year innovative and alternative technologies (known as ``I/A'') 
program. The I/A program helped successfully move technologies 
such as land treatment of wastewater, sludge composting and 
alternative collection systems from relative obscurity to 
widespread acceptance. For example, the I/A program documented 
successes and problems with ultraviolet disinfection. This 
method is now routinely considered as an alternative to 
chlorination, especially where there are concerns about 
security or toxic effects of residual chlorine and chlorine 
byproducts. The program also demonstrated that I/A technologies 
can reduce costs while increasing environmental performance. 
One Kentucky community constructed a wetland treatment facility 
as an alternative to traditional wastewater treatment 
technology and achieved a savings of over $2.5 million. Another 
community using this approach claimed to save about $12 
million.
    Given the program's success, Congress established financial 
incentives for I/A technology as a permanent feature of the 
construction grants program in 1981, but the program was 
largely discontinued after fiscal year 1990 when State 
Revolving Funds (SRFs) replaced the construction grant program.
    To further encourage research into innovative technology, 
Section 302 establishes in the Environmental Protection Agency 
both a research and development program and a demonstration 
grant program. The research program is aimed at: (1) increasing 
the effectiveness and efficiency of public water supply systems 
(including source water protection, reduced water usage, water 
reuse, water treatment and distribution systems, and water 
security); (2) encouraging the use of innovative or alternative 
approaches relating to water supply or availability; and (3) 
increasing the effectiveness of treatment works (including 
system design, nonstructural alternatives, water efficiency, 
water security, assessments and methods of collecting, 
treating, dispersing, reusing, reclaiming and recycling 
wastewater). It is authorized at $20 million annually from 
fiscal year 2003 through fiscal year 2007.
    The demonstration grant program targets water quality 
management and enhancement. It requires at least a 20 percent 
non-Federal cost share for projects. The program will promote 
innovations in technology and alternative approaches to water 
quality management and supply, with the goal of reducing 
municipal costs of complying with the Clean Water and Safe 
Drinking Water acts. Municipalities selected for programs must 
describe a strategy by which the demonstration grants could 
achieve similar goals as (1) those mandated by the Clean Water 
or Safe Drinking Water acts; or (2) those that could be 
achieved by traditional water quality methods. Grant recipients 
must submit annual reports regarding projects effectiveness to 
EPA for 3 years and must submit biannual reports to both House 
and Senate authorization committees regarding project status 
and results.
    The Administrator is to provide grants for water supply or 
water quality matters including excessive nutrient growth; 
urban or rural population pressure; difficulties in water 
conservation and efficiency; a lack of support tools and 
technologies to rehabilitate and replace water supplies; a lack 
of monitoring and data analysis for water distribution systems; 
nonpoint source pollution; sanitary or combined sewer 
overflows; a lack of an alternative water supply; or problems 
with naturally occurring constituents of concern. The 
Administrator must ensure to the maximum extent practicable 
that innovative technologies, geographic distribution, and non-
traditional approaches are all represented.
    The National League of Cities, the Conference of Mayors, 
and the American Metropolitan Sewerage Association (AMSA) 
testified in favor of the demonstration grant program at a 
February 2002 hearing. AMSA testified that such a program is 
``vitally important.'' The Deputy Assistant Administrator from 
EPA's Office of Water also testified in favor of research into 
innovative technologies at the same hearing:

        ``This strategy to renew our water and wastewater 
        infrastructure . . . puts a high premium on optimizing 
        the efficient use of our current capital assets and the 
        new investments we must make. That will require the use 
        of innovative technologies for improved services at 
        lower life-cycle costs, which in turn means supporting 
        research and development on these innovative 
        technologies.''
Sec. 303. Rate Study

                                SUMMARY

    This section directs the EPA to work with the National 
Academy of Sciences to study public water rate structures and 
to work with stakeholders to streamline the process of applying 
for State Revolving Fund loans.

                               DISCUSSION

    Rate structures are the primary means of generating revenue 
for public wastewater and drinking water facilities. Typically, 
local governments or State public utility commissions establish 
rates taking into consideration the capital replacement needs 
of the facility, the cost of operation and maintenance, debt 
service, and the conditions of various rate classes. While rate 
setting would seem to be an objective procedure, it is often a 
politically charged process.
    A water facility may have significant financial need, but 
setting a rate sufficient to address that need may be 
unattractive or untenable for local governments. Many times 
this condition perpetuates a vicious cycle of pushing 
infrastructure costs to the future where they become even more 
costly. After many hearings and meetings with stakeholders, it 
became clear to the committee that there are few standards and 
best practices in the setting of rates at public water 
facilities.
    In order to provide a tool for water systems and a measure 
of performance for Congress to evaluate rate structures, 
section 303 requires EPA to complete a study with the National 
Academy of Sciences on the rate structures of public water 
systems and treatment works. The study will include an 
evaluation on whether public water systems and treatment works 
have instituted rate structures that are sufficient to address 
the full cost of service, including funds necessary to replace 
infrastructure. It will identify the manner in which public 
water systems and treatment works determine their rates and 
recommend a set of best industry practices for establishing 
rates. The study will take special consideration of identifying 
incentive rate systems that reduce per capita water demand, the 
volume of wastewater flows, the volume of stormwater runoff, 
and the volume of pollution generated by stormwater. In an 
effort to better address the needs of disadvantaged 
communities, the study will examine how States determine their 
affordability criteria. This section authorizes $1 million for 
the study for fiscal years 2003 and 2004.
Sec. 304. State Revolving Fund Review Process

                                SUMMARY

    Section 304 establishes a State Revolving Fund review 
process.

                               DISCUSSION

    The purpose of this section is to require the Administrator 
of the EPA to consult with States and water and wastewater 
facilities to identify ways to streamline and improve the 
application and review process for the provision of assistance 
from the water pollution and drinking water State Revolving 
Funds. The testimoneys of the States, the EPA, and the 
recipients of assistance have a common theme: the process can 
be burdensome with unnecessary paperwork and duplication of 
efforts. The roles of the EPA, the States, and the recipients 
need further clarification. The funding sometimes is not 
allocated to communities who need assistance the most because 
they may be overwhelmed or intimidated by the process. It is 
discouraging to small treatment works because they cannot 
afford to spend resources on the paperwork necessary to 
participate and compete.
    Because this is an issue that should be addressed carefully 
and appropriately, those who know about the processes and their 
complexities are best served to review the question and advise 
Congress. It is hoped that, by streamlining the process, the 
SRFs would be used as efficiently and effectively as possible, 
while ensuring that the accountability of all parties remains.
Sec. 305. Transfer of Funds

                                SUMMARY

    Section 305 makes permanent States' authority to transfer 
up to 33 percent of grant funds between the Clean Water and 
Safe Drinking Water revolving funds. This section also 
increases the amount of funds for administration of the 
Drinking Water SRF program from 4 percent to 6 percent.

                               DISCUSSION

    This idea was first established as a short-term experiment 
in 1996 but has provided needed flexibility to address priority 
problems. ASIWPCA testified in favor of this provision at the 
February 2002 hearing, as did the Association of State Drinking 
Water Associations (ASDWA) and the Deputy Assistant 
Administrator of the Environmental Protection Agency, who 
stated:

        ``We welcome the committee's proposal to turn . . . the 
        States' authority to transfer funds between the Clean 
        Water and Safe Drinking Water State Revolving Fund . . 
        . into a well-established tool to promote cost-
        effective investment.''

                   Title IV--Water Resources Planning

                                SUMMARY

    Title IV directs the U.S. Geological Survey to assess the 
water resources of the United States, to work with other 
Federal agencies to develop a list of water resources 
priorities for use by State and local water managers as well as 
Federal agencies, and to report periodically to Congress on the 
results of its efforts. The title authorizes $3 million 
annually from fiscal year 2003 through fiscal year 2007 for 
this purpose and acknowledges the primacy of the States in the 
appropriation, distribution and control or use of water within 
State borders.
Sec. 401. Findings
    This section includes congressional findings on the 
critical impact that water has on our Nation. It focuses on the 
fact that water issues do not follow political boundaries and 
for that reason a regional focus is necessary when making 
decisions regarding water resources. The findings identify the 
fact that there is no national policy or coordinated Federal 
strategy to monitor the water resources of the United States, 
and they simultaneously recognize that the States have the 
authority to allocate and administer water within the borders 
of the States.
Sec. 402. Definition of Secretary
    This section defines ``Secretary'' as the Secretary of 
Interior, acting through the Director of the USGS.
Sec. 403. Actions

                                SUMMARY

    This section requires USGS to conduct a water resource 
assessment, identify water resource research priorities in 
conjunction with other Federal agencies, and develop a process 
for information sharing.

                               DISCUSSION

    Competing demands for water supplies, as well as water 
shortages or surpluses can have a significant effect on public 
health, agriculture, the environment and the economy. However, 
there is no current national policy regarding water resources. 
The U.S. Water Resources Council (WRC) was formerly responsible 
for this function. Established by the Water Resources Planning 
Act of 1965, the WRC studied the Nation's water and related 
land resources.
    It prepared periodic assessments to determine whether these 
resources were adequate to meet national water requirements and 
developed important economic and environmental criteria for 
water projects--known as the ``Principles and Guidelines''--
that are still used today by Federal water resource planning 
agencies. Under President Carter, it was suggested that the 
WRC's role be expanded to include greater regulatory authority 
and stronger review of water projects. This proved unpopular 
with many stakeholders and the Reagan Administration 
effectively terminated the council. Since then, there has been 
no nationally coordinated water policy planning.
    Given this need, along with the recent severe droughts 
experienced by certain regions of the country, this committee 
found that periodic updated assessments of national water 
resources are necessary to better inform decisionmakers. The 
House Appropriations Committee on Interior and Related Agencies 
noted the same concern in its committee report (House Report 
107-103) regarding fiscal year 2002 appropriations for the 
Department of the Interior:

        ``The committee is concerned about the future of water 
        availability for the Nation. Water is vital . . . 
        Unfortunately, a nationwide assessment of water 
        availability for the United States does not exist, or, 
        at best, is several decades old.''

    The House committee directed the U.S. Geological Survey to 
prepare a report describing the depth and breadth of the 
efforts needed to provide periodic assessments of the status 
and trends in the availability and use of freshwater resources. 
Though this report was unavailable at the time of hearings 
regarding this legislation, the Associate Director for Water at 
the Geological Survey testified to the committee on February 
28, 2002 hearing that there is a ``critical need for regular 
reporting on . . . uses of water nationwide.'' The Associate 
Director also testified that, at the direction of the House 
Interior Appropriations Committee, USGS has contracted with the 
National Research Council to study nationwide water research 
priorities and that this is consistent with an Office of 
Management and Budget memorandum regarding the coordination of 
water resources information (OMB Memorandum 92-01).
    Some of the information developed through these efforts may 
well contribute to fulfilling the information requested by 
Title IV. To address the problem, section 403 directs the 
Secretary of the Interior, acting through the U.S. Geological 
Survey, to assess the water resources of the US, including 
fresh water and groundwater for defined watersheds and major 
aquifers.
    It also directs the Geological Survey to develop, with 
other Federal agencies, a list of water resources priorities 
focused on monitoring and providing better quality information 
to State, local and tribal managers. Federal agencies are 
directed to use this list when allocating water research 
funding. In this manner, the committee believes that Federal 
funds spent on water research will be part of a coordinated 
strategy to direct research funds where they are truly needed 
to combat water resource challenges.
    The USGS is also directed to develop an effective way to 
communicate the information from the studies and other types of 
information such as real-time data, to decisionmaker, the 
private sector and the general public. Using this communication 
system, the USGS will ensure that the information developed 
through its research is fully available to the public.
    The Associate Director for Water at the U.S. Geological 
Survey testified in favor of Title IV at the February 28 
hearing stating, ``the role defined in Title IV . . . is an 
appropriate one for the USGS and . . . could improve Federal 
coordination of water information.'' However, he also stated 
that USGS's expertise is defining the quantitative aspects of 
available water resources rather than whether those resources 
constitute a ``surplus'' or ``shortage'' of water.
    The committee does not intend for the USGS itself to 
declare shortages or surpluses based on this data. Rather, the 
intent is to give decisionmakers access to real-time water 
availability data and models for use in determining potential 
effects based on that data. It is important to note that 
Congress and the committee have deferred and will continue to 
defer to the States on the authority to allocate and administer 
water within State borders.
Sec. 404. Report to Congress
    This section requires a report to Congress every 2 years on 
the implementation of this title.
Sec. 405. Authorization of Appropriations
    This section authorizes for appropriation $3,000,000 for 
fiscal years 2003 to 2007.

                         Title V--Miscellaneous

Sec. 501. Nutrient Control Technology Grant Program
    Title V establishes a grant program within the 
Environmental Protection Agency for States and municipalities 
to upgrade nutrient removal technologies at State and municipal 
wastewater treatment plants. The title authorizes $100 million 
annually for each of fiscal years 2003 through 2007. The title 
also directs the EPA not to carry out this grants program 
unless funds made available for capitalization grants under 
Title VI for the fiscal year exceeds $1,350,000,000.

                               DISCUSSION

    Nationwide, a number of bodies of water are impaired due to 
high levels of nitrogen. Excessive nitrogen levels can 
adversely affect estuarine and other aquatic systems, resulting 
in accelerated eutrophication, algal blooms and hypoxia. These 
conditions deprive fish and shellfish of oxygen and prevent 
underwater sea grasses from receiving the light they need to 
survive. In turn, the animals that depend on these seagrasses 
for food and shelter leave the area or die as well.
    According to the National Oceanic and Atmospheric 
Administration's National Estuarine Eutrophication Assessment, 
some 65 percent of the total estuarine surface studied 
exhibited moderate or high eutrophication conditions. Areas 
particularly affected include the Gulf of Mexico, the 
Chesapeake Bay, the Long Island Sound and other northeast 
estuaries. Experts expect these conditions to worsen over the 
next 20 years.
    High nitrogen levels can result from many contributing 
factors, including sewage treatment plants, stormwater runoff, 
atmospheric deposition and contaminated discharges from farms 
or animal feeding operations. However, the National Coastal 
Condition Report, released by the Environmental Protection 
Agency together with other Federal agencies, indicates that 
municipal point sources constitute a leading cause of estuary 
impairment for 28 percent of the area studied. For example, 23 
percent of the nitrogen entering the Chesapeake Bay originates 
primarily from publicly owned treatment works, and New York's 
Long Island Sound receives over 150,000 pounds of nitrogen per 
day from area sewage treatment plants.
    Given the large amount of nitrogen being released from 
publicly owned treatment works, one way to effectively address 
this problem is to upgrade these plants to remove more nitrogen 
from their effluent. The average secondary treatment plant 
discharge contains 12-16 milligrams of nitrogen per liter; some 
techniques, such as biological nutrient removal, can cut this 
nitrogen discharge level by over half, while saving energy, 
using fewer chemicals and producing less sludge.
    To promote upgrades of nutrient removal technology, Title V 
establishes a national grant program within the Environmental 
Protection Agency. This program would provide funds to States 
and municipalities to upgrade nutrient removal technologies for 
eligible facilities (those with a permitted design capacity to 
treat an annual average of 500,000 gallons or more of 
wastewater per day). The technologies must achieve an annual 
average concentration of not more than 4 milligrams per liter 
of nitrogen in discharged wastewater or the limit of nutrient 
removal technologies in a particular geographical area. In 
providing the grants, the EPA is required to give priority to 
those facilities at which such upgrades would result in the 
greatest environmental benefits.
Sec. 502. Effects on Policies and Rights

                                SUMMARY

    This provision states that nothing in this Act impairs or 
otherwise affects in any way, any right or jurisdiction of any 
State with respect to the water (including boundary water) of 
the State; supersedes, abrogates, or otherwise impairs the 
authority of any State to allocate quantities of water within 
areas under the jurisdiction of the State; or supersedes or 
abrogates any right to any quantity or use of water that has 
been established by any State.

                               DISCUSSION

    This provision seeks to provide assurance to those 
concerned about retaining the integrity of existing law 
regarding State water rights. It makes no change to existing 
law.
Sec. 503. Effective Date
    This section provides that except as otherwise provided, 
the provisions of this bill take effect on October 1, 2002.

                          Legislative History

    On February 17, 2002, Senators Graham, Crapo, Jeffords, and 
Smith introduced S. 1961, the Water Investment Act. The 
committee considered and amended the bill in business meetings 
on May 16, 2002 and May 17, 2002 and ordered the bill, as 
amended, reported to the Senate.

                                Hearings

    The Subcommittee on Fisheries, Wildlife, and Water held 
four hearings related to clean water and drinking water 
programs and one legislative hearing on S. 1961. The full 
committee held one legislative hearing on S. 1961.
    On March 27, 2001, The Subcommittee on Fisheries, Wildlife, 
and Water held a hearing on water and wastewater infrastructure 
needs. Testimony was received from Hon. Christine Todd Whitman, 
Administrator, Environmental Protection Agency; Mr. Jon 
Sandoval, Chief of Staff, Idaho Department of Environmental 
Quality, Boise, ID; Mr. David Struhs, Secretary, Florida 
Department of Environmental Protection, Tallahassee, FL; Mr. 
Harry Stewart, Director, Water Division, New Hampshire 
Department of Environmental Services, Concord, NH; and Mr. 
Allen Biaggi, Administrator, Nevada Department of Conservation 
and Natural Resources, Division of Environmental Protection, 
Carson City, NV.
    On April 30, 2001 in Columbus, Ohio, the Subcommittee 
Fisheries, Wildlife, and Water held a field hearing, focusing 
on the types of water infrastructure challenges facing local 
communities in that region. Testimony was received from Hon. 
Lydia Reid, Mayor of Mansfield, OH; Hon. Robert Vicenzo, Mayor 
of St. Clairsville, OH; Mr. Christopher Jones, Director, Ohio 
Environmental Protection Agency; Columbus, OH; Mr. Erwin Odeal, 
Executive Director, Northeast Ohio Regional Sewer District, 
Cleveland, OH; Mr. Robert Stevenson, Commissioner, Department 
of Public Utilities, Division of Water/Wastewater, Toledo, OH; 
Mr. Patrick T. Karney, P.E., Director, Metropolitan Sewer 
District of Greater Cincinnati, Cincinnati, OH; and Mr. Patrick 
Gsellman, Environmental Supervisor, Bureau of Engineering, 
Akron, OH.
    On October 31, 2001, the Subcommittee on Fisheries, 
Wildlife, and Water held an oversight hearing on innovative 
financing techniques for water infrastructure improvements. 
Testimony was received by Mr. G. Tracy Mehan III, Assistant 
Administrator, Office of Water, Environmental Protection 
Agency; Mr. Stephen E. Howard, Senior Vice President, Lehman 
Brothers; Mr. Rick Farrell, Executive Director, Council of 
Infrastructure Financing Authorities; Mr. Peter L. Cook, 
Executive Director, National Association of Water Companies; 
Mr. Harold J. Gorman, Executive Director, New Orleans Sewage 
and Water Board, on behalf of the Association of Metropolitan 
Water Agencies; and Mr. Paul Pinault, Executive Director, 
Narragansett Bay Commission, on behalf of the Association of 
Metropolitan Sewerage Agencies.
    On November 14, 2001, the Subcommittee on Fisheries, 
Wildlife, and Water held a hearing on water supply. Testimony 
was received from Hon. Mike Parker, Assistant Secretary of the 
Army for Civil Works; Mr. John Keys, Commissioner for the 
Bureau of Reclamation, Department of the Interior; Mr. Tom 
Weber, Deputy Chief of Programs, Resources Conservation 
Service, Department of Agriculture; Ms. Ane Diester, Associate 
Vice President, Metropolitan Water District of Southern 
California, testifying as the non-Federal Chair of the National 
Drought Council; Mr. Jay Rutherford, Director, Water Supply 
Division, Vermont Department of Environmental Conservation, on 
behalf of the Association of State Drinking Water 
Administrators; Mr. Ken Frederick, Senior Fellow, Resources for 
the Future; and Mr. Leland ``Roy'' Mink, Director, Idaho Water 
Resources Research Institute.
    On February 26, 2002, the Committee on Environment and 
Public Works held the first legislative hearing on S. 1961 and 
other water infrastructure related bills. Testimony was 
received from Senator Jon Kyl; Mr. Ben Grumbles, Deputy 
Assistant Administrator for Water, Environmental Protection 
Agency; Hon. Douglas H. Palmer, Mayor of Trenton, NJ and 
chairman of the Urban Water Council of the Conference of 
Mayors; Hon. Joseph A. Moore, Alderman of the City of Chicago, 
on behalf of the League of Cities; Ms. Nancy Stoner, Director, 
Clean Water Project, Natural Resources Defense Council; Mr. 
Paul Schwartz, National Policy Director, Clean Water Action; 
Mr. Bill Kukurin Associated Builders and Contractors; Mr. Jim 
Barron, President, Ronkin Construction, on behalf of the 
National Utility Contractors Association; Mr. Terry Yellig, 
Building Trades Attorney, Sherman, Dunn, Cohen, Leifer & 
Yellig, on behalf of the International Union of Operating 
Engineers.
    On February 28, 2002, the Subcommittee on Fisheries, 
Wildlife, and Water held the second legislative hearing on S. 
1961 and other water infrastructure related bills. Testimony 
was received from Senator Paul S. Sarbanes; Mr. Robert Hirsch, 
Associate Director of Water, U.S. Geological Survey; Mr. Andrew 
M. Chapman, President, Elizabethtown Water Company, on behalf 
of the National Association of Water Companies; Mr. Ed 
Archuleta, General Manager, El Paso Water Utilities, on behalf 
of the Association of the Metropolitan Water Agencies; Mr. Paul 
Pinault, Executive Director, Narragansett Bay Commission on 
behalf of the Association of Metropolitan Sewerage Agencies; 
Mr. Elmer Ronnebaum, General Manager, Kansas Rural Water 
Association, on behalf of the National Rural Water Association; 
Mr. Howard Neukrug, Director, Office of Watershed of the 
Philadelphia Water Department, on behalf of the American Water 
Works Association; Mr. Tom Morrissey, President, Association of 
State and Interstate Water Pollution Control Administrators; 
and Mr. Jay L. Rutherford, P.E., Director, Water Supply 
Division for the Vermont Department of Environmental 
Conservation, on behalf of the Association of State Drinking 
Water Administrators.

                             Rollcall Votes

    The Committee on Environment and Public Works met to 
consider S. 1961 on May 16 and 17, 2002. A manager's amendment 
offered by Senators Jeffords and Graham was agreed to by voice 
vote.
    An amendment offered by Senator Smith to modify the 
allocation formula for the SRF capitalization grants failed on 
a rollcall vote of 6 ayes and 12 nays. Voting in favor were 
Senators Chafee, Crapo, Domenici, Inhofe, Smith of New 
Hampshire, and Warner. Voting against were Senators Baucus, 
Bond, Boxer, Carper, Clinton, Corzine, Graham, Lieberman, Reid, 
Voinovich, Wyden, and Jeffords.
    An amendment offered by Senator Smith to modify the 
categories used for the allocation formula for the SRF 
capitalization grants failed on a rollcall vote of 6 ayes and 
11 nays. Voting in favor were Senators Bond, Crapo, Domenici, 
Inhofe, Smith of New Hampshire, and Warner. Voting against were 
Senators Baucus, Boxer, Carper, Chafee, Clinton, Corzine, 
Graham, Lieberman, Reid, Voinovich, and Jeffords.
    An amendment offered by Senator Voinovich to modify the 
asset management plan requirements failed on a rollcall vote of 
8 ayes and 10 nays. Voting in favor were Senators Bond, Chafee, 
Crapo, Domenici, Inhofe, Smith of New Hampshire, Voinovich, and 
Warner. Voting against were Senators Baucus, Boxer, Carper, 
Clinton, Corzine, Graham, Lieberman, Reid, Wyden, and Jeffords.
    An amendment offered by Senator Voinovich to modify the 
restructuring requirements for the Clean Water SRF failed on a 
rollcall vote of 8 ayes and 10 nays. Voting in favor were 
Senators Bond, Chafee, Crapo, Domenici, Inhofe, Smith of New 
Hampshire, Voinovich, and Warner. Voting against were Senators 
Baucus, Boxer, Carper, Clinton, Corzine, Graham, Lieberman, 
Reid, Wyden, and Jeffords.
    An amendment offered by Senator Voinovich to modify the 
community development requirements failed to pass on a rollcall 
vote of 8 ayes and 10 nays. Voting in favor were Senators Bond, 
Chafee, Crapo, Domenici, Inhofe, Smith of New Hampshire, 
Voinovich, and Warner. Voting against were Senators Baucus, 
Boxer, Carper, Clinton, Corzine, Graham, Lieberman, Reid, 
Wyden, and Jeffords.
    An amendment offered by Senator Voinovich to modify the 
restructuring requirements for the Drinking Water SRF failed on 
a rollcall vote of 8 ayes and 10 nays. Voting in favor were 
Senators Bond, Chafee, Crapo, Domenici, Inhofe, Smith of New 
Hampshire, Voinovich, and Warner. Voting against were Senators 
Baucus, Boxer, Carper, Clinton, Corzine, Graham, Lieberman, 
Reid, Wyden, and Jeffords.
    An amendment offered by Senator Voinovich to apply Davis-
Bacon standards for the first round of Clean Water SRF loans 
failed to pass on a rollcall vote of 4 ayes and 15 nays. Voting 
in favor were Senators Bond, Chafee, Crapo, and Voinovich. 
Voting against were Senators Baucus, Boxer, Carper, Clinton, 
Corzine, Domenici, Graham, Inhofe, Lieberman, Reid, Smith of 
New Hampshire, Specter, Warner, Wyden and Jeffords.
    An amendment offered by Senator Voinovich to apply Davis-
Bacon standards for the first round of Drinking Water SRF loans 
failed to pass on a rollcall vote of 4 ayes and 15 nays. Voting 
in favor were Senators Bond, Chafee, Crapo, and Voinovich. 
Voting against were Senators Baucus, Boxer, Carper, Clinton, 
Corzine, Domenici, Graham, Inhofe, Lieberman, Reid, Smith of 
New Hampshire, Specter, Warner, Wyden and Jeffords.
    An amendment offered by Senators Crapo, Smith of New 
Hampshire, and Inhofe to streamline the application and review 
process passed by voice vote.
    An amendment offered by Senator Reid to apply Davis-Bacon 
standards to all Clean Water SRF loans passed by voice vote.
    An amendment offered by Senator Reid to apply Davis-Bacon 
standards to all Drinking Water SRF loans passed by voice vote.
    An amendment offered by Senator Reid to provide for a small 
community drinking water grant program passed by voice vote.
    An amendment offered by Senator Voinovich to modify the 
provision relating to technical, managerial, and financial 
capacity for optimal performance of treatment works passed by 
voice vote.
    An amendment offered by Senator Voinovich to modify 
provisions relating to requirements for project priority 
systems passed by voice vote.
    An amendment offered by Senator Voinovich to modify 
provisions relating to requirements for project priority 
systems passed by voice vote.
    An amendment offered by Senator Voinovich to increase the 
percentage of sums allotted to a State under title VI that may 
be reserved for planning passed by voice vote.
    An amendment offered by Senator Voinovich to modify 
provisions relating to wet weather projects passed by voice 
vote.
    An amendment offered by Senator Wyden to make projects 
relating to water conservation eligible to receive assistance 
under State revolving loan funds passed by voice vote.
    An amendment offered by Senator Wyden to modify the 
provision relating to technical assistance providers passed by 
voice vote.
    The committee favorably reported the bill by a vote of 13 
ayes and 6 nays. Voting in favor were Senators Jeffords, 
Baucus, Reid, Graham, Lieberman, Boxer, Wyden, Carper, Clinton, 
Corzine, Chafee, Specter, and Domenici. Voting against were 
Senators Smith of New Hampshire, Warner, Inhofe, Bond, 
Voinovich, and Crapo.

                      Regulatory Impact Statement

    In compliance with section 11(b) of rule XXVI of the 
Standing Rules of the Senate, the committee makes evaluation of 
the regulatory impact of the reported bill. The bill does not 
create any additional regulatory burdens, nor will it cause any 
adverse impact on the personal privacy of individuals.

                          Mandates Assessment

    In compliance with the Unfunded Mandates Reform Act of 1995 
(Public Law 104-4), the committee finds that S. 1961 would 
impose no unfunded mandates on local, State, or tribal 
governments.

                          Cost of Legislation

    Section 403 of the Congressional Budget and Impoundment 
Control Act requires that a statement of the cost of the 
reported bill, prepared by the Congressional Budget Office, be 
included in the report. That statement follows:

                                     U.S. Congress,
                               congressional Budget Office,
                                     Washington, DC, June 20, 2002.

Hon. James M. Jeffords, Chairman,
Committee on Environment and Public Works,
U.S. Senate, Washington, DC.

    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 1961, the Water 
Investment Act of 2002.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Susanne S. 
Mehlman (for Federal costs), who can be reached at 226-2860.
            Sincerely,
                                            Dan L. Crippen.
                              ----------                              


               congressional Budget Office Cost Estimate

S. 1961, Water Investment Act of 2002, as ordered reported by the 
        Committee on Environment and Public Works, on May 17, 2002
Summary
    CBO estimates that implementing this legislation would cost 
about $16.7 billion over the next 5 years, assuming the 
appropriation of the authorized amounts. The funds would be 
used by the Environmental Protection Agency (EPA) to provide 
grants to States and nonprofit organizations to support a wide 
range of water quality projects and programs. The Joint 
Committee on Taxation (JCT) estimates that enacting S. 1961 
would reduce revenues by $0.2 billion over the 2003-2007 period 
and by $2 billion over the next 10 years. Because enactment of 
this bill would affect receipts, pay-as-you-go procedures would 
apply.
    S. 1961 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA). 
The bill would benefit State, local, and tribal governments by 
creating new grant programs and by reauthorizing and expanding 
existing grants under the Federal Water Pollution Control Act 
and the Safe Drinking Water Act. Any costs incurred to receive 
or administer grants under these programs would be voluntary.
Estimated Cost to the Federal Government
    The estimated budgetary impact of S. 1961 is shown in the 
following table. The costs of this legislation fall within 
budget function 300 (natural resources and environment).


                                     By Fiscal Year, in Millions of Dollars
----------------------------------------------------------------------------------------------------------------
                                                              2002     2003     2004     2005     2006     2007
----------------------------------------------------------------------------------------------------------------
                    CHANGES IN REVENUES
Changes to Tax-Exempt Financing:
    Estimated Revenues\1\.................................        0       -1       -6      -23      -61     -122
             SPENDING SUBJECT TO APPROPRIATION
EPA's Spending for Water Infrastructure and Grants Under
 Current Law:
    Authorization Level\2\................................    2,209    1,772        0        0        0        0
    Estimated Outlays.....................................    2,044    2,397    2,013    1,398      668      150
Proposed Changes:
    Clean Water SRF Grants:
        Authorization Level...............................        0    3,200    3,200    3,600    4,000    6,000
        Estimated Outlays.................................        0      160      640    1,620    2,660    3,420
    Safe Drinking Water SRF Grants:
        Authorization Level...............................        0      500    2,000    2,000    3,500    6,000
        Estimated Outlays.................................        0       25      175      550    1,225    2,100
    Sewer Overflow Control Grants:
        Authorization Level...............................        0        0      250      250      250      250
        Estimated Outlays.................................        0        0      125      200      238      250
    New York City Watershed Protection:
        Authorization Level...............................        0       10       25       25       25       25
        Estimated Outlays.................................        0       10       24       25       25       25
    Technical Assistance for Small Systems:
        Authorization Level...............................        0        1        6        6        6        6
        Estimated Outlays.................................        0        1        6        6        6        6
    Environmental Finance Centers:
        Authorization Level...............................        0        0        2        2        2        2
        Estimated Outlays.................................        0        0        2        2        2        2
Technical Assistance for Nonprofits:
        Authorization Level...............................        0        7        7        7        7        7
        Estimated Outlays.................................        0        4        6        7        7        7
    Small Public Water Assistance Grants:
        Authorization Level...............................        0    1,000    1,000    1,000    1,000    1,000
        Estimated Outlays.................................        0       50      200      500      800      950
    Research and Demonstration Grant Programs:
        Authorization Level...............................        0       40       40       40       40       40
        Estimated Outlays.................................        0       20       32       38       40       40
    EPA Rate Study and Department of the Interior Reports:
        Authorization Level...............................        0        4        4        3        3        3
        Estimated Outlays.................................        0        4        4        3        3        3
    Nutrient Control Grant Program:
        Authorization Level...............................        0      100      100      100      100      100
        Estimated Outlays.................................        0       50       80       95      100      100
    Total Proposed Changes:
        Authorization Level...............................        0    4,863    6,634    7,033    8,933   13,433
        Estimated Outlays.................................        0      324    1,294    3,046    5,106    6,903
    EPA's Spending for Water Infrastructure and Grants
     Under S. 1961........................................
        Authorization Level\2\............................    2,209    6,635    6,634    7,033    8,933   13,433
        Estimated Outlays.................................    2,044    2,721    3,307    4,444    5,774    7,053
----------------------------------------------------------------------------------------------------------------
Note: SRF = State Revolving Fund.
\1\Estimate provided by JCT.
\2\ The 2002 level is the amount appropriated for that year to EPA for the following programs: clean water State
  Revolving Fund, safe drinking water State Revolving Fund, New York City watershed protection, technical
  assistance for small systems, and environmental finance centers. The 2003 amount includes sums authorized
  under current law for the following programs: safe drinking water State Revolving Fund, sewer overflow control
  grants, New York City watershed protection, technical assistance for small systems, and environmental finance
  centers.

Basis of Estimate
    For this estimate, CBO assumes that S. 1961 will be enacted 
by the start of fiscal year 2003, that the full amounts 
authorized will be appropriated, and that outlays will follow 
the historical pattern of EPA programs. Components of the 
estimated costs are described below.
Revenues
    This bill would increase the funds available under the 
clean water State Revolving Fund (SRF) and the safe drinking 
water SRF, which could result in some States leveraging their 
funds by issuing additional tax-exempt bonds. The JCT estimates 
that the consequent reductions in revenue would total $213 
million over the 2003-2007 period and $2 billion over the next 
10 years.
Spending Subject to Appropriation
    S. 1961 would authorize appropriations totaling about $41 
billion over the next 5 years for EPA's water infrastructure 
and grant programs.
    The bill would authorize the appropriation of $34 billion 
over the 2003-2007 period for EPA to provide capitalization 
grants for the SRF program ($20 billion for the clean water SRF 
program and $14 billion for the safe drinking water SRF 
program, in addition to existing authorizations for those 
programs under current law). States would use such grants along 
with their own funds to make low-interest loans to communities 
and grants to Indian tribes to construct wastewater treatment 
facilities and to fund other projects that would improve the 
quality of drinking water. This bill would make several 
revisions to these grant programs, including extending loan 
repayment terms, expanding the types of projects eligible for 
assistance, and changing the formulas used to allocate grant 
money among the States.
    This legislation also would authorize the appropriation of 
$1 billion over the 2003-2007 period for EPA to make grants to 
States to remedy sewage overflows (that is, the discharge of 
untreated wastewater). S. 1961 also would authorize the 
appropriation of $5 billion over the same period for EPA to 
make grants to small public water systems to address the cost 
of complying with drinking water regulations, including meeting 
the requirements for the removal of arsenic in drinking water. 
In addition, the bill would authorize about $1 billion over the 
next 5 years for various other purposes, including several 
grant programs aimed at promoting innovations in technology and 
alternative approaches to water quality management and an EPA 
study of the rate structure of public water systems and 
treatment works.
Pay-As-You-Go Considerations
    The Balanced Budget and Emergency Deficit Control Act sets 
up pay-as-you-go procedures for legislation affecting direct 
spending or receipts. The net changes in governmental receipts 
that are subject to pay-as-you-go procedures are shown in the 
following table. For the purposes of enforcing pay-as-you-go 
procedures, only the effects through 2006 are counted.

                                                         By Fiscal Year, in Millions of Dollars
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                             2002    2003    2004    2005    2006     2007     2008     2009     2010     2011     2012
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays (Not applicable).......................
Changes in receipts.......................................       0      -1      -6     -23     -61     -122     -203     -296     -382     -436     -450
--------------------------------------------------------------------------------------------------------------------------------------------------------

Intergovernmental and Private-Sector Impact
    S. 1961 contains no intergovernmental or private-sector 
mandates as defined in UMRA. The bill would benefit State, 
local, and tribal governments by creating new grant programs 
and by reauthorizing and expanding existing grants under the 
Federal Water Pollution Control Act and the Safe Drinking Water 
Act. Any costs incurred to receive or administer grants under 
these programs would be voluntary.
Previous CBO Estimate
    On April 11, 2002, CBO transmitted a cost estimate for H.R. 
3930 as ordered reported by the House Committee on 
Transportation and Infrastructure on March 20, 2002. On April 
23, 2002, CBO transmitted a cost estimate for H.R. 3930 as 
ordered reported by the House Committee on Ways and Means on 
April 17, 2002. CBO estimates that both versions of H.R. 3930 
would cost $9.2 billion over the next 5 years, assuming the 
appropriation of the authorized amounts. The version of the 
bill reported by the House Committee on Transportation and 
Infrastructure also would reduce revenues by $252 million over 
the 2003-2007 period according to the Joint Committee on 
Taxation. In contrast, enacting the Ways and Means Committee 
version would reduce revenues by $123 million over the same 
period.
    S. 1961 would authorize the appropriation of much larger 
amounts for water infrastructure and grant programs than either 
version of H.R. 3930. The Joint Committee on Taxation estimates 
that enactment of S. 1961 would reduce revenues by $213 million 
over the next 5 years.

Estimate Prepared By: Federal Spending: Susanne S. Mehlman; 
Impact on Revenues: Thomas Holtmann, Joint Committee on 
Taxation; Impact on State, Local, and Tribal Governments: 
Angela Seitz; Impact on the Private Sector: Jean Talarico.

Estimate Approved By: Robert A. Sunshine, Assistant Director 
for Budget Analysis.
 Minority Views of Senators Smith of New Hampshire, Crapo, Inhofe, and 
                               Voinovich

    For the first time since passage of the Safe Drinking Water 
Act in 1996 both the House and Senate have developed and are 
considering far-reaching clean water legislation. This is a 
monumental time for those of us who believe more can be done to 
ensure a safe, reliable supply of clean water for consumption, 
recreation and fishing. Unfortunately, an opportunity was lost 
when the Senate Environment and Public Works Committee walked 
away from a bipartisan process and reported out a partisan bill 
that three of the sponsors of S. 1961 opposed.
    This process began in the 106th Congress. Then-Chairman 
Smith identified water infrastructure as one of his top 
priorities. Then-Subcommittee Chairman Crapo initiated a number 
of Clean Water Act and Safe Drinking Water Act oversight 
hearings to identify successes and failures of the statutes. 
Senator Voinovich introduced legislation to reauthorize the 
Clean Water State revolving loan fund (SRF) in both the 106th 
and 107th Congresses.
    We were pleased that Senator Jeffords maintained water 
infrastructure as a committee priority when he assumed the 
chairmanship. Together with Senator Graham we outlined goals 
for the bill which included providing States and communities 
with additional resources, promoting new approaches to water 
quality management, encouraging financial efficiencies and 
ensuring adequate funding at all levels of government while 
leaving the system no more complicated or difficult to access 
than the current one.
    The committee held a series of hearings beginning with one 
convened by Senator Crapo in the Fisheries, Wildlife and Water 
subcommittee on March 27, 2001 which examined the size of the 
infrastructure need. The subcommittee heard about the history 
of Federal financing, the regulatory and financial burden on 
small systems and overall costs of upgrading systems.
    A field hearing was held on April 30, 2001 in Columbus, 
Ohio to explore the state-specific wastewater treatment 
problems that can come with the implementation of the Clean 
Water Act and the SRF program. Throughout the spring and summer 
of 2001, committee staff met with stakeholders and interested 
parties to receive expert testimony and comments on rural 
community needs, compliance costs and other issues.
    A third hearing was held on October 31, 2001 and examined 
innovative financing mechanisms. The committee held its final 
hearing on water supply on November 14, 2001. It should be 
noted that objections were raised to this hearing topic because 
the issue of water supply is one properly in the jurisdiction 
of the Senate Committee on Energy and Natural Resources (ENR). 
Our task, as members of the EPW committee, is to ensure the 
nation's waters are clean and safe for consumption, not that 
there is an ample supply of water. However, given the close 
relationship between water supply and water quality, it was 
agreed to proceed with the hearing and include a water supply 
title consistent with testimony received during the hearing.
    Given the controversial nature of many of related and 
unrelated topics, bill drafting was done in close coordination 
with our Majority colleagues with each of us working to craft a 
bipartisan, consensus bill that could be jointly steered 
through the legislative process. S. 1961 met the objectives 
laid out by its sponsors. Among our chief objectives was to 
implement the changes we felt were needed to both increase 
efficiencies and extend the life of each dollar in the system 
without further complicating the process. Therefore, S. 1961, 
as introduced, rested much of the implementation 
responsibilities with the States. The States know their 
programs best and know best how these new requirements can most 
easily be met without delaying or discouraging applications and 
overburdening systems.
    However, many of those who testified at two legislative 
hearings held after the bill's introduction believed more could 
be done to perfect the measure and ensure its effectiveness. 
These witnesses wanted the States' role and authority more 
clearly defined so as to exclude EPA authority to issue 
complicated, one-size-fits-all regulations.
    After the hearings on the bill as introduced, we convened 
meetings with the Majority to address some of the concerns 
expressed by stakeholders both in the hearings and in 
subsequent communications with the committee. Many of the 
concerns raised by the States who would oversee most of the 
bill's provisions and the municipalities who would have to meet 
the bill's requirements must be addressed if the important 
programs addressed in the bill are to succeed. Without walking 
away from the agreements struck with the majority or the core 
principles of getting more resources to the States and building 
efficiencies into the system, we sought to work with our 
colleagues and Senator Voinovich, who became a lead advocate 
for the States' positions.
    Together we agreed to many of the changes incorporated in 
the chairman's substitute. Many of them greatly improved the 
underlying bill, including a provision that exempted from some 
of the bill's provisions communities who received assistance of 
less than $500,000. In the underlying bill, a provision that 
these requirements be imposed only on those who received 
``significant'' assistance went largely unnoticed. The 
increased specificity directly responded to concerns raised by 
stakeholders.

Multiple Bids

    After much discussion, our colleagues also agreed to strike 
subsection 103(m) and section 205 of the underlying bill. These 
provisions called for performance-based bids in local 
contracts. While we certainly support the goal of promoting 
competition and ensuring quality materials, it is a goal that 
should be pursued at the State and local levels, reflective of 
their situations and needs, not with a mandate from the Federal 
Government. Most States have their own laws to oversee the 
bidding process and we have not seen evidence of an 
overwhelming problem calling for Federal intervention. States 
who have experienced difficulties in their bidding processes, 
like Pennsylvania, have effectively addressed those problems by 
updating their regulations.

Preconstruction costs

    The Majority Report accompanying this bill makes reference 
to modifications made in Section 103(c) and Section 203 
extending eligibility to infrastructure projects for planning, 
design, and preconstruction costs. Although some communities 
have been able to use currently available SRF funds to offset 
the costs of planning, design, and preconstruction activities, 
when available, these have been limited to reimbursement costs 
if that community also receives SRF funds for the actual 
construction of the project itself. Without making planning, 
design, and preconstruction costs eligible in their own right, 
regardless of the source of construction costs, there remains 
the unfortunate effect of holding smaller and financially 
challenged communities without options for seeking SRF funds 
for the initial work necessary to proceed to the construction 
phase because there is no certainty that the project will later 
receive construction funds from the SRF.
    We do not disagree with this provision, but believe the 
intent behind it needs clarification beyond that in the report. 
The intent of the provision in the legislation is to make 
planning, design, and preconstruction activities specifically 
eligible on their own. Communities that need assistance with 
the very costly resources to take the first steps prior to 
construction should not be left without recourse from the SRF. 
Considerable testimony and information on this dilemma has been 
brought to the attention of the committee from such challenged 
small and rural communities. Indeed, communities may need 
assistance from the SRF for planning, design, or 
preconstruction work, but may have access to resources 
elsewhere to fund the accompanying construction project. The 
modifications made in S. 1961 envision this possibility and 
makes planning, design, and preconstruction activities 
separately eligible.

Restructuring

    Unfortunately, many of the changes in the chairman's 
substitute ran counter to the bulk of the testimony received 
and did not reaffirm our original intent regarding State 
flexibility. For instance, Section 103(j) requires facilities 
to explore new management structures to determine if a new 
approach might be cost-effective. According to S. 1961, a State 
may provide assistance to a facility only if the recipient has 
considered three options including consolidation and 
nonstructural alternatives. A similar provision is contained in 
(202)(c)(1) of the drinking water title. Because many systems 
already explore these options as means of reducing costs and we 
sought to encourage other systems to explore alternative 
management structures, this requirement was envisioned as an 
easily managed and simple process consistent with existing 
State practices. Systems would tell the State, most likely as 
part of their loan agreement, that they had considered these 
options. Unlike the asset management or capacity development 
sections which we felt were critical to the future of the 
program, the restructuring provisions were intended to be far 
more flexible in how States implemented them. The approach 
taken in S. 1961, as introduced, provided the States the 
flexibility to determine how that communication between 
themselves and the utilities would take place.
    The chairman's substitute passed by the committee adds 
language requiring facilities to ``demonstrate and document'' 
to the State that they have considered the various options. The 
documentation requirement is unnecessary given the intent of 
the authors and creates a burden on local and State governments 
by dictating how they must fulfill this section. States 
consistently expressed their difficulties in fulfilling the 
obligations of documenting compliance with this provision 
unless they are permitted to implement it in a manner 
consistent with State practices. The document requirement in 
later sections of the bill is appropriate because those 
sections, asset management and capacity development, are 
believed by the sponsors to be central to the future 
sustainability of the SRF programs. However, the document 
requirement is overly burdensome in the restructuring provision 
which, again, was merely intended to be a list of possible 
cost-saving measures that facilities should give some 
consideration to.

Capacity Development

    In further response to issues raised by stakeholders, the 
sponsors all supported many of the amendments offered by 
Senator Voinovich during mark-up including an amendment to 
strike clause 103(i)(2)(B)(i) and paragraphs 103(i)(3) and 
103(i)(4). S. 1961, as introduced, required States to develop a 
strategy for how they will help facilities meet the capacity 
development requirements in Title I. Senator Voinovich's 
amendment struck most of these criteria in order to give States 
the flexibility to determine how they would fulfill these 
requirements.
    However, during mark-up, the Majority failed to support the 
addition of the phrase, ``to the satisfaction of the State'' in 
this same section. The chairman's substitute takes a positive 
step to ensuring the flexibility we had intended for the States 
by requiring facilities to ``demonstrate and document to the 
State'' that they have met the capacity development 
requirements. However, without clarifying that the State will 
determine how the requirement will be met, the door is left 
open for the EPA to step in and establish rigid, one-size-fits-
all guidelines.
    Some have argued that this is a Federal program run with 
Federal money and therefore, the possibility of Federal 
oversight should be left open. This is only partially true and 
not what was envisioned by the program originators or what we 
had envisioned when we crafted the bill. Congress has 
consistently and intentionally left much of the operations of 
the SRFs to the States. They were created with a goal of 
minimizing Federal involvement in the funding of these projects 
with an intent to eventually phase-out Federal funding, leaving 
entirely State-run and managed systems. In 1987, when the Clean 
Water Act was revised, Senator John Chafee, one of the Act's 
authors, stated, ``The revolving loan fund embodied in this 
legislation presents a great opportunity for the States to 
eventually assume full responsibility for construction of 
wastewater treatment facilities in their jurisdictions.''
    Senator Baucus testified during this same debate ``The job 
of cleaning up the Nation's backlog of waste treatment will 
fall squarely on the shoulders of the States, as provided for 
in this bill (the Water Quality Act of 1987).''
    Finally, in the implementation regulations for the SRF, the 
EPA stated ``The Federal role in the capitalization grants 
program is limited to program level grants-making and review. 
Each SRF is to be administered and operated by the State, with 
minimal Federal requirements imposed on its structure.''
    We have no reason now to veer from that objective when we 
have not seen evidence that, to the best of their ability and 
intentions, the States are not effectively managing their 
programs. Therefore, clarifying that it is the States' criteria 
that must be met to satisfy the Federal requirement is 
consistent with how the program has been run to date. We regret 
that this small change was rejected.
    This dispute highlights an important principle that 
separates us from the Majority. We believe that the States are 
fundamentally good stewards of their waterways and that they 
too would like the money in the SRFs to go as far as possible. 
They are unlikely to fund wasteful, unworthy projects and 
deserve more trust than some of the provisions advocated by the 
Majority would imply.

Community Planning

    Senator Voinovich offered the ``to the satisfaction of the 
State'' language as an amendment to subsection 103(f). This 
section, as modified by the chairman's substitute, requires a 
facility to ``demonstrate and document'' to the State that it 
will consult and coordinate with the agencies responsible for 
local land use plans, regional transportation plans and State 
and regional watershed plans. The underlying bill does not go 
into details on how this requirement will be fulfilled because 
we envisioned each State developing a mechanism that works best 
with its program. Senator Voinovich's amendment would have 
eliminated any ambiguity on this issue. The chairman's 
substitute does not go far enough to satisfy the expressed 
needs of the State program managers, particularly in light of 
the fact that the provision at issue has little to do with the 
bill's underlying goals.

Subsidization

    Another provision in the chairman's substitute with which 
we must disagree violated one of the bill's guiding principles: 
to maintain the SRFs and their capacity to revolve well into 
the future. The amendment would make low impact development 
projects eligible for principal forgiveness.
    Due to our concern about the future of the funds, the 
sponsors of S. 1961 agreed to limit principal forgiveness and 
extended loan terms, which can affect the corpus of the funds, 
to three instances, including: 1) those communities that met a 
State's definition of disadvantaged; 2) disadvantaged subsets 
of a larger community; and 3) any community that meets the 
requirements of subsection 103(i) because we believe it to be 
critical to the success of any State program. No other projects 
were eligible for this additional assistance.
    We were contacted extensively by various interest groups 
for grants or set-asides from within the fund for their 
particular constituencies. Most constituencies indicate they do 
not receive a sufficient amount of SRF funds or grant 
agreements or represented a particularly hard-pressed interest. 
In truth, no constituencies are probably receiving enough 
simply because the SRFs have been so underfunded in recent 
years and the nationwide need is quite extensive. However, most 
do get their proportional fair share based on the nationwide 
needs. Further, States are very adept at developing funding 
packages for facilities by combining SRF loans with State 
grants, Community Development Block Grant money or rural 
development funds. Therefore, we concluded that more set-asides 
or grants were not necessary.
    One of the constituencies referenced above believes that 
nonpoint source pollution and low-impact development 
technologies are not receiving a sufficient amount of funds. 
Twenty-two percent of SRF agreements are for nonpoint source 
projects. It is not known how many of them involve projects 
referenced in paragraph 103(c)(3), e.g., constructed wetlands, 
roof gardens or other alternative approaches however, these 
approaches are eligible for SRF funding. Additionally, nonpoint 
source projects have their own grant program under Section 319 
of Federal Water Pollution Control Act. Municipal wastewater 
facilities do not have a corresponding grant program. The SRF 
is the only authorized source of money for water and drinking 
water infrastructure projects.
    Aside from the lack of evidence to suggest that these 
projects should get preferential funding over other traditional 
approaches, making them eligible for principal forgiveness does 
not create an incentive for States to fund them. States, even 
more than Congress, are concerned about the future of the SRFs 
and will provide principal forgiveness at their discretion and 
to an extent that will preserve the SRFs.
    The language already included in S. 1961 is more than 
sufficient to promote these technologies, which again we fully 
support. For the first time, S. 1961 requires States to list 
nonpoint source projects on their priority lists. This is a 
broad departure from the 1987 Act which created the SRF and 
required listing only projects for publicly owned treatment 
works. Authors of the 1987 Act wanted infrastructure funded 
first, before States could move onto different approaches and 
problems.
    To promote the visibility of such initiatives and educate 
communities as to their potential applications, S. 1961 
establishes a demonstration program to help highlight 
alternative approaches with which communities might not be 
familiar.
    Further, subsection 103(j) requires each facility, during 
its planning and engineering stage, to consider these new 
approaches. There is no better ``incentive'' than to require 
every SRF recipient to consider using these technologies. This 
position is supported by the General Accounting Office report, 
``Water Pollution--Information on the Use of Alternative 
Wastewater Treatment Systems.'' In it, the GAO concluded, 
``While alternative systems may be cost-effective, there are 
barriers to their use. The primary barrier is lack of knowledge 
on the part of engineers and State and local officials about 
the alternatives' applicability, performance and cost.'' S. 
1961, as introduced, tackles the problem exactly where the GAO 
identified it by asking communities to look into alternative 
approaches where appropriate. We believe the bill as introduced 
struck the right balance between promoting new approaches while 
preserving the financial health and future of the SRF.
    Other provisions included in S. 1961 generating some 
concern among witnesses, in part out of the same concern for 
the financial stability of the SRFs, were sections 103(c)(8) 
and 203. These allow additional subsidization to disadvantaged 
ratepayers within a community that does not meet the State's 
definition of a disadvantaged community. The States must ensure 
that the funds are used to provide assistance to the individual 
ratepayers.
    The goal of this provision was to address an issue raised 
by systems in large areas that had pockets of disadvantaged 
ratepayers as well as higher-income ratepayers but did not 
qualify as disadvantaged across the entire community. The 
systems argued that they could not raise rates because their 
disadvantaged ratepayers could not pay more and it is 
politically difficult to raise rates on one neighborhood to pay 
for another. Current law, section 204(b), requires facilities 
to charge proportionate rates and essentially creates a 
firewall between sectors of ratepayers--commercial, industrial 
and residential--so that if the facility has ever received 
Federal grant money it cannot raise rates on a commercial 
entity to pay for a residential rate cut. Most current 
facilities did receive funds under the old Title II 
construction grants program.
    In short, utilities cannot raise rates on their entire 
service community, so they often do not raise them and, 
therefore, cannot generate the funds needed to fund 
infrastructure improvements.
    There are two solutions. Congress could revoke the 
proportionate rate requirement. However, this requirement also 
serves to protect residential ratepayers from increases 
necessary for municipal flexibility to encourage new business 
and economic investment. It appears that this is a necessary 
provision and we have heard no one argue against it.
    The second option is to allow the use of SRF money to 
benefit the low-income ratepayer. Since we are trying to fund 
infrastructure, we had envisioned utilities using the subsidy 
to hold those ratepayers harmless while adjusting all others 
accordingly. The language as drafted would not prohibit a 
community from providing reduced rates to low-income 
ratepayers. However, doing so will not enhance the community's 
ability to fund an infrastructure project.
    Several issues related to these provisions became apparent 
in testimony from our two hearings. First, most who testified 
to the disadvantaged user sections did construe them to be 
welfare programs designed to reduce the rates of low-income 
ratepayers. This is possible under the language, but not 
consistent with the goals of the bill. Further, many witnesses 
were also unclear as to how the provisions would work and felt 
clarification was necessary.
    Senator Smith offered an amendment to strike both sections 
because of the concerns raised. While not questioning the need 
to help low-income ratepayers, the goal was to use this 
subsidization so that communities could actually pay for 
infrastructure and therefore, he felt it should be reworked.
    Senator Voinovich, reflecting State concerns that these 
provisions would be difficult to administer because States 
would have to trace each dollar in subsidy through to a 
disadvantaged ratepayer, offered a second degree to the Smith 
amendment. Unfortunately, because of minor, technical problems 
with the amendment, they were both withdrawn and the original 
provision remains in the bill. Again, we do not question the 
need for such assistance, but believe if it remains, the 
provision ought to be workable, which, as nearly every witness 
testified, these are not. We maintain our concern and hope this 
language can be reworked to maintain State flexibility, protect 
the goal of funding infrastructure and protect the SRFs.

Judicial Review

    Most of the new requirements in the bill address facility 
management and budgeting and do not specifically address a 
clean water or drinking water goal. Therefore, since our 
objective is to save money by building efficiencies into the 
SRF systems, it is counterintuitive to allow these new 
financial and managerial requirements be used as the basis of 
lawsuits which serve to primarily drive up costs. Again, these 
requirements do not affect the quality of water, but the amount 
of money spent at each level to keep the facilities running. 
Lawsuits based on, for instance, the asset management 
requirements would be aimed only at preventing a project from 
going forward, not on any substantive concerns with asset 
management.
    Again, this concept was endorsed by the bill's sponsors and 
provisions limiting judicial review to prevent lawsuits based 
on the bill's new requirements were included in S. 1961, as 
introduced. The Majority contends because it sufficiently 
addressed States' concerns about their flexibility to implement 
the new requirements, a judicial review protection is no longer 
needed. We disagree. As we have already articulated, we do not 
believe State concerns about flexibility have been adequately 
addressed, thereby leaving both the State and the systems 
vulnerable to lawsuits.
    The Majority attests that no judicial review is possible 
because of the language mandating ``a treatment work [to] 
demonstrate and document to the State that ``. . . it has 
complied with the requirements of the statute. This view is 
plainly false. Absent an explicit statutory ban of judicial 
review, there is simply no way to stop a lawsuit from being 
litigated. Under this bill, States remain subject to claims 
that the processes they employ in evaluating compliance were 
inadequate. Moreover, these new requirements ``to demonstrate 
and document'' cannot bar a lawsuit, or even operate as a 
complete defense when one is filed. To the contrary, if a 
lawsuit is filed, the issue of compliance with those 
requirements becomes a jury question. The goal of this 
legislation should be to save the States money, thus stretching 
every dollar within the system. It is contrary to our expressed 
goal to thus expose States and municipalities to millions of 
dollars in costs to defend and perhaps pay damages in lawsuits, 
just because one town thinks another should not have gotten 
assistance, or because an outside group thinks one of the 
requirements was not adequately met, or because another wishes 
to limit ``growth'' in an area.

Extraneous and regulatory issues

    Another guiding principle that we held firm to when 
crafting the bill was that we did not want to address any 
regulatory issues that would alienate any one side. Providing 
new resources to the SRFs is too important a goal to get 
sidetracked on contentious and divisive issues. Therefore, S. 
1961 was ``clean'' of riders and regulatory issues when it was 
introduced. Unfortunately, this cannot be said of the 
chairman's substitute.
    The chairman's substitute included a provision that had not 
been the subject of any hearings before the committee. While 
the language was mentioned briefly by Nancy Stoner and Paul 
Schwartz in their testimony before the committee on February 
26, the committee has not formally received input from any of 
the major stakeholders who would be impacted by the funding 
prohibition for significant noncompliance (SNC) contained in 
subparagraph 103(i)(3)(C). Proponents claim States are funding 
so-called bad actors, which none of us would support. However, 
we have no evidence that they are funding weak projects and 
wasting money or that there is a problem not being addressed by 
the States which needs Federal intervention.
    The potential impacts on water systems of the new 
requirement are not clear. According to EPA, every 3 months a 
computer generates a list of facilities meeting EPA standards 
for significant noncompliance (SNC) with the Clean Water Act. 
It is important to remember that the entire system is 
considered in SNC if just one part of it falls into SNC. Of the 
7,000 major wastewater facilities, approximately 500 will 
appear on each report. Of those, only 150 will actually go into 
negotiations with EPA or States to determine how to address the 
SNC. The others are simply left on the list and given no 
assistance in how to come off the list.
    The impact on clean water programs needs to be fully 
evaluated before the funding prohibition is forced onto SRFs 
that have been in operation for 15 years, unlike the drinking 
water program which was new when the requirement went into 
effect. Stakeholders have indicated their overwhelming 
opposition to the significant noncompliance language. Attempts 
to narrow the language to ensure it had no unintended 
consequences failed.
    We do agree that States should not be funding bad actors, 
and we believe they are doing their best to restrict funding to 
questionably managed operations. However, the language as 
written is too broad and may harm more systems, and hence 
waterways, than the authors intended. We simply do not know 
enough about how this provision would impact water facilities 
nationwide who are doing an excellent job with limited 
resources protecting America's waters.
    Many of the additions made in the chairman's substitute are 
likely to require significant additional regulations written by 
EPA. This outcome was consistently and loudly opposed by all 
stakeholders, who recognize the inherent flexibility in the 
underlying SRF programs is what makes the systems function 
well. Additional regulations and unknown concepts are likely to 
result in costly litigation and delays in projects to improve 
water quality and drinking water supplies.
    Finally, we should not allow extraneous and historically 
divisive issues to obscure the future of an issue of national 
importance about which we all so strongly agree. Agreement is 
nearly universal that we may soon have a crisis in water 
infrastructure if additional resources are not provided to meet 
increased Federal and State regulatory requirements and address 
aging pipes and facilities. There are other extraneous issues 
that have divided us, not just along party lines, but also 
regional and State boundaries. There is no need to address 
these matters in this bill or at this early stage in the 
process.
    We regret that we are unable to support S. 1961 as reported 
by the committee. We remain committed to the overall goals of 
this legislation, particularly infusing the SRFs with 
additional resources that the Nation so critically needs.

      Minority Views of Senators Smith of New Hampshire and Inhofe

    Over the strong objections of several Republicans, the bill 
as reported contains an amendment offered by Senator Reid to 
extend the provisions of the Davis-Bacon Act to all projects 
funded by both the Clean Water and Drinking Water revolving 
loan funds (SRF). In other words, Davis-Bacon would go where it 
has never gone before, and would encumber even small projects 
in right-to-work States paid for ultimately by those States but 
which in the short term benefit from loans made possible by 
this bill.
    Davis-Bacon is a bad law and there can be no justification 
in extending its clutches, particularly to water projects that 
will ultimately be paid for by the States. The Bill of Rights 
should protect States from such congressional interference, but 
the Supreme Court has been split 5-4 on this issue since the 
1930's when Davis-Bacon was first enacted. In practice, it adds 
huge costs to every project it touches, ranging from 5-38 
percent of the total job cost. It prevents efficiency by 
precluding the use of lesser-skilled helpers or trainees, thus 
also inhibiting entry into the workplace of those people. It 
stacks the deck against small, emerging and minority 
businesses. It fails to add any benefit relating to training, 
safety or job quality, and to the contrary subjects jobs to 
waste, fraud and abuse.
    Since its creation in 1996, the drinking water SRF and 
since October 1, 1994, the clean water State SRF have operated 
efficiently without Davis-Bacon requirements, to the benefit of 
all Americans. There is no reason to extend the onerous grasp 
of Davis-Bacon.

  Minority Views of Senators Smith of New Hampshire, Crapo and Inhofe

    The original cosponsors of the bill spent months developing 
a formula that would be fair to everyone. After each meeting 
and after each spreadsheet, it became more and more apparent 
that the only fair basis for a new formula is one based on the 
needs survey without political manipulation. The current 
drinking water allocation is based on the drinking water needs 
survey with a 1-percent floor to protect small States who lack 
the economies of scale to maintain effective programs if they 
receive funding based solely on individual project needs. The 
Drinking Water SRF program has been universally popular and 
few, if any, have objected to its allocation structure. The 
most logical and fair way to reform the clean water formula is 
to have it based on the clean water needs survey.
    We were however concerned about the impact a needs-based 
system would have on States that have been wrongly benefiting 
from the current formula, a political calculation written into 
law in 1987, and our colleagues from a handful of States who 
would have to give up a little (if appropriations stay at 
fiscal year 2002) to provide fairness to all States. Therefore, 
a temporary buffer fund was created to keep these States whole 
until the next needs survey is published in 2006 and hopefully, 
appropriations have reached the level at which no one loses.
    Based on the most recent needs survey, this would 
necessitate an increase of $200 million in the allocation. We 
note that, in the fiscal year 2003 VA-HUD Appropriations bill, 
the Senate Appropriations Committee has already recommended an 
increase of $100 million over the previous year for the Clean 
Water SRF program. While this is certainly less than the 
authorization levels proposed in S. 1961, the increase supports 
the contention made in the base bill that appropriations will 
ultimately increase above fiscal year 2002 levels and by 
Senator Smith's amendment that a complicated and lengthy 
transition period may not be necessary.
    The fiscal year 2002 VA-HUD-Independent Agencies 
Appropriations bill, Congress expressed ``. . . the sense of 
the Senate that the Committee on Environment and Public Works 
of the Senate should be prepared to enact authorizing 
legislation (including an equitable, needs-based formula) for 
the Senate water pollution control revolving fund as soon as 
practicable after the Senate returns from the recess in 
September.''
    To comply with this instruction, S. 1961, as introduced, 
adopted an approach based on well-received and well-functioning 
Drinking Water SRF approved by Congress in 1996. This 
allocation system is universally accepted as a good model for 
the Clean Water SRF as well. Consistent with this model, a 
minimum allocation is reserved to small States to ensure they 
have a workable amount of funds to administer their programs.
    It was a fair proposal based on policy and precedent both 
of which could easily be defended throughout the legislative 
process. We regret that our colleagues walked away from a 
principled approach for one aimed only at passing the bill out 
of committee.
    The formula in the chairman's substitute asks States who 
have been wrongly disadvantaged by the current system, 
particularly many of those that have been affected by the 
demographic changes in the past 15 years, to wait 6 years 
before they get the full amount owed to them. This lengthy and 
complex transition period assumes that appropriations will 
remain at the fiscal year 2002 level despite historical trends 
that show funding fluctuating from year to year. The proposed 
formula also continues to use as part of its formula the 
current political system which we have all agreed must be 
replaced. Finally and unfortunately, it compromises the needs 
of small States.
    The amended formula introduces cumbersome and little-
understood manipulations of the fund allocations. Based on no 
supportive testimony, the chairman's substitute establishes a 
new allocation formula based on shifting weights of the current 
statutory formula and the most recent needs survey. This is 
further complicated by creating exceptions in any year in which 
a single State would find its funds rising or falling more than 
20 percent over the previous year. As such, no State can expect 
its allocation to be based on its demonstrated needs. While the 
new approach would be phased out in 6 years, the new needs 
survey to be issued in 2006 will result in another uncertain 
reallocation of funds due to the blending of outdated models.
    Further, it is important to note that the difference in 
funding for small States between the Majority floor of 0.7 
percent and the floor proposed in the base bill of 1.0 percent 
is about $100 million or $4 million per State at the floor. It 
is a small amount of money, but an amount that will go a long 
way to helping smaller States maintain viable programs. While 
$4 million does not mean much to States like California and New 
York, who are receiving upwards of $80 million a year, it means 
a lot to States like Vermont and Delaware who would receive 
only between $9 and $13 million, depending on the floor. Work 
at one treatment plant could easily consume $9 million. At 
those levels, many argue, what is the point in a State even 
participating in the SRF program? As Senator Crapo pointed out 
during mark-up, the 20 largest States currently receive 74 
percent of the funds; under the formula in S. 1961 as 
introduced, they would still receive 68 percent of the funds. 
That means the remaining 30 States are sharing 32 percent of 
the money. How is that unfair to the large States?
    Every 4 years, the EPA asks States to assess their water 
quality-related needs in seven categories. The categories 
include secondary treatment (I), combined sewer overflows (V), 
storm water (VI) and nonpoint source pollution (VII). The needs 
survey primarily enables us to gauge what the water quality 
needs are and where each is most prevalent. A similar needs 
survey is conducted for drinking water. However, the drinking 
water needs survey serves one additional purpose it is the 
basis for the drinking water formula by which funds are 
distributed to the States.
    The chairman's substitute included a formula which would 
distribute clean water money according the needs survey with 
the exception of category VII, nonpoint source pollution (NPS). 
The underlying bill correctly included all seven categories so 
that it accurately reflects the needs of all States in all 
areas.
    We understand concerns raised by the majority that nonpoint 
source pollution is not defined in law and tying it to a 
funding formula may cause some States to manipulate the system. 
However, the EPA currently includes NPS in the needs survey, it 
assesses State 319 (nonpoint source) plans and it enforces 
total maximum daily loads, therefore it is difficult to argue 
that they are suddenly unable to determine what a legitimate 
NPS need is. Most important, States are under increasing 
pressure to do more about nonpoint source pollution. It is a 
widespread water quality problem that does need to be 
addressed, which is why it is included in the needs survey. 
States are devoting more and more of their resources to 
nonpoint source pollution, thus straining the amount they can 
spend on infrastructure. Therefore, nonpoint does impact what 
is available for other water quality problems that are 
addressed in the formula. Including nonpoint in the formula 
does not require a State to spend on nonpoint projects, but 
will give them resources to address all of their water quality 
problems. Finally, it should be noted that the EPA's most 
recent needs survey document does not even identify NPS 
problems as the most uncertain category.
    It is also an unfortunate truth that if NPS is not included 
in the formula, some States do benefit to the detriment of 
others. Alabama, Louisiana, Mississippi, New Mexico, North 
Dakota, Wisconsin, South Dakota and Arkansas all listed NPS as 
their greatest need in the 1996 needs survey. Idaho, Iowa, 
Maine, Minnesota, Oklahoma, Utah, and Washington each list it 
is as their second largest need. Therefore, taking it out of 
the formula calculation is going to have a detrimental impact 
on these States' share of the money without any real policy 
justification for doing so.
    With regard to the overall formula, the minority, just like 
the majority, consists of both large and small States and we 
acknowledge that this divide may be difficult to overcome when 
determining a new allocation formula. However, we are in 
agreement that the committee must develop a formula based on 
policy that can sustain political attacks as the bill moves 
through the legislative process. We appreciate that the 
sponsors of the chairman's substitute were trying to craft a 
formula that would pass the committee. We would argue, however, 
that if other extraneous issues had not been forced on the 
committee, passing the formula would not have been an issue. We 
further would argue that getting the bill out of committee, 
while an obvious necessary first step, is not sufficient to get 
the bill signed into law.
    The only way to do that is to find a policy about which we 
can all agree and defend it against attack and political 
amendments. We know some States including some of the 
minority's may lose money at current appropriated levels, but 
the only way any bill survives this process is if the formula 
is fair and can be defended on policy grounds. The formula put 
forth by the majority satisfies neither of these conditions.

                  Minority Views of Senator Voinovich

    The Clean Water State Revolving Loan Fund (SRF) program and 
its companion program, the Drinking Water State Revolving Loan 
Fund program, are some of the nation's most successful public 
works programs because they are run by States with minimal 
Federal requirements. This flexibility allows solutions to be 
put in place that respond not to a one-size-fits-all Federal 
model, but to the unique water quality needs and circumstances 
of individual communities.
    Unfortunately, the version of S. 1961 considered by the 
committee threatened to undermine State authority and 
responsibility over the SRF programs and institute new and 
burdensome mandates on local communities seeking to improve 
their water systems, without the likely addition of significant 
new funding.
    In response, I joined State and municipal groups to craft 
compromise language that would ensure that all of the aims of 
the original legislation are met while maintaining a system of 
oversight that is simple, well-defined, and appropriate to the 
localities, States and the Federal agencies with regulatory 
oversight of this area.
    For example, section 103(j)(2) of S. 1961 would require as 
a condition of funding that States oversee and monitor local 
sewer and water utilities to assure that rates charged to 
customers reflect the ``actual cost of service.'' Rate-setting 
is the prerogative of local government. This requirement 
inserts States directly into rate-setting decisions and 
overlooks the fact that the vast majority of States are 
prohibited by State law and, in some cases, their own 
constitutions, from meddling in local water and sewer rate-
setting.
    Section 204(b)(1) of the Clean Water Act, which contains 
the proportional rate requirement, was part of the of the old 
construction grant program. The proportional requirement was 
carried over to the SRF program by virtue of section 602(b)(6), 
but the requirement was no longer applied to SRF loans after 
1994 when Clean Water Act authorization expired. Municipalities 
that are still repaying pre-1995 loans still use a proportional 
rate structure.
    The way it worked is that rates had to be charged 
proportionately within the residential, commercial, and 
industrial sectors. It is based upon the idea that you pay for 
what you use. In the residential sector rates are assessed 
based upon use and in the commercial and industrial sectors 
rates are assessed based upon load. In enforcing this 
requirement, SRF managers would look at: 1) the municipality's 
rate structure to see that the costs of plant operation and 
maintenance were distributed proportionately; 2) the charges 
actually assessed, to determine if the rate structure was being 
implemented properly (i.e., so no person or business was 
getting a special favor); and 3) whether the plant was 
collecting enough money in rates charged to cover operation, 
maintenance, and equipment replacement (individual pieces of 
equipment not systems) on an annual basis. The SRF managers 
were not required to and would not specify what rates should be 
charged. Nor was there any requirement that SRF managers 
consider how municipalities covered their debt service 
(mortgage costs) because Congress did not want to limit 
municipalities in terms of how they covered these costs. Again, 
this provision expired in 1994.
    By contrast, S. 1961 requires that States ensure that rates 
cover the ``actual cost of service'' and ``capital 
replacement.'' This requires States to ensure that the rates 
charged by municipalities cover every component of running a 
wastewater plant. S. 1961 goes far beyond the old proportionate 
rate requirement, which covered only operations and 
maintenance.
    In a simplified example, the old requirement would have a 
taxi driver (municipality) ensure that it has enough money to 
cover the cost of gas, oil, and routine maintenance of the taxi 
cab (i.e., occasionally replacing an alternator). By contrast, 
S. 1961 requires that the State oversee taxi operations to 
ensure that each taxi driver's rates cover gas, oil, 
maintenance, the costs of the car loan (debt service) plus new 
engines/transmissions, and eventually the complete replacement 
of the taxi (capital replacement).
    The S. 1961 rate structure requirements are not the same as 
the old requirements because they would require that States 
determine that the rates charged customers reflect all fixed, 
variable, and future costs (even costs of plant expansion). The 
States believe this puts them in the rate-setting business, 
which is why I opposed the provision and offered an amendment 
to strike the requirement.
    I regret that I am unable to support S. 1961 as reported by 
the committee. However, the legislation is important to address 
the nation's critical water infrastructure needs. When S. 1961 
is considered on the Senate floor, I am hopeful the committee 
will make the necessary changes to the bill to maintain State 
and local flexibility to address their unique water quality 
needs and requirements.

                        Changes in Existing Law

    In compliance with section 12 of rule XXVI of the Standing 
Rules of the Senate, changes in existing law made by the bill 
as reported are shown as follows: Existing law proposed to be 
omitted is enclosed in [black brackets], new matter is printed 
in italic, existing law in which no change is proposed is shown 
in roman:
                              ----------                              


                  Federal Water Pollution Control Act

                        (33 U.S.C. 1251 et seq.)

AN ACT To provide for water pollution control activities in the Public 
Health Service of the Federal Security Agency and in the Federal Works 
                    Agency, and for other purposes.

      Be it enacted by the Senate and House of Representatives 
of the United States of America in Congress assembled,

                 TITLE I--RESEARCH AND RELATED PROGRAMS

                    DECLARATION OF GOALS AND POLICY

      Sec. 101. (a) The objective of this Act is to restore and 
maintain the chemical, physical, and biological integrity of 
the Nation's waters. In order to achieve this objective it is 
hereby declared that, consistent with the provisions of this 
Act--

           *       *       *       *       *       *       *


SEC. [121] 122. WET WEATHER WATERSHED PILOT PROJECTS.

           *       *       *       *       *       *       *


                       [SEWAGE COLLECTION SYSTEMS

      [Sec. 211. (a) No grant shall be made for a sewage 
collection system under this title unless such grant (1) is for 
replacement or major rehabilitation of an existing collection 
system and is necessary to the total integrity and performance 
of the waste treatment works serving such community, or (2) is 
for a new collection system in an existing community with 
sufficient existing or planned capacity adequately to treat 
such collected sewage and is consistent with section 201 of 
this Act.]

SEC. 211. SEWAGE COLLECTION SYSTEMS.

    (a) In General.--No grant shall be made for a sewage 
collection system under this title unless the grant--
            (1) is for replacement or major rehabilitation of a 
        sewage collection system that is--
                    (A) in existence as of February 15, 2002; 
                and
                    (B) necessary to the total integrity and 
                performance of the waste treatment works 
                serving the community served by the collection 
                system; or
            (2) is for a new sewage collection system for a 
        community that--
                    (A) is in existence as of February 15, 
                2002; and
                    (B) has sufficient existing or planned 
                capacity to treat collected sewage.
      [(b) If]
    (b) Population Density.--If the Administrator uses 
population density as a test for determining the eligibility of 
a collector sewer for assistance it shall be only for the 
purpose of evaluating alternatives and determining the needs 
for such system in relation to ground or surface water quality 
impact.
      [(c) No]
    (c) Prohibition on Grants.--No grant shall be made under 
this title from funds authorized for any fiscal year during the 
period beginning October 1, 1977, and ending September 30, 
1990, for treatment works for control of pollutant discharges 
from separate storm sewer systems.

           *       *       *       *       *       *       *

      Sec. 216. Notwithstanding any other provision of this 
Act, in accordance with section 603(g), the determination of 
the priority to be given each category of projects for 
construction of publicly owned treatment works within each 
State shall be made solely by that State, except that if the 
Administrator, after a public hearing, determines that a 
specific project will not result in compliance with the 
enforceable requirements of this Act, such project shall be 
removed from the State's priority list and such State shall 
submit a revised priority list. These categories shall include, 
but not be limited to (A) secondary treatment, (B) more 
stringent treatment, (C) infiltration-in-flow correction, (D) 
major sewer system rehabilitation, (E) new collector sewers and 
appurtenances, (F) new interceptors and appurtenances, and (G) 
correction of combined sewer overflows. [Not less than 25 per 
centum of funds allocated to a State in any fiscal year under 
this title for construction of publicly owned treatment works 
in such State shall be obligated for those types of projects 
referred to in clauses (D), (E), (F), and (G) of this section, 
if such projects are on such State's priority list for that 
year and are otherwise eligible for funding in that fiscal 
year. It is the policy of Congress that projects for wastewater 
treatment and management undertaken with Federal financial 
assistance under this Act by any State, municipality, or 
intermunicipal or interstate agency shall be projects which, in 
the estimation of the State, are designed to achieve optimum 
water quality management, consistent with the public health and 
water quality goals and requirements of the Act.]

           *       *       *       *       *       *       *


SEC. 221. SEWER OVERFLOW CONTROL GRANTS.

    (a) In General.-- * * *

           *       *       *       *       *       *       *

    (f ) Authorization of Appropriations.--There is authorized 
to be appropriated to carry out this section [$750,000,000 for 
each of fiscal years 2002 and 2003. Such sums shall remain 
available until expended.] section, to remain available until 
expended--
            (1) $750,000,000 for each of fiscal years 2002 and 
        2003; and
            (2) $250,000,000 for each of fiscal years 2004 
        through 2007.

           *       *       *       *       *       *       *


                          GENERAL DEFINITIONS

      Sec. 502. Except as otherwise specifically provided, when 
used in this Act:
      (1) The term ``State water pollution control agency'' 
means the State agency designated by the Governor having 
responsibility for enforcing State laws relating to the 
abatement of pollution.
      (2) The term ``interstate agency'' means an agency of two 
or more States established by or pursuant to an agreement or 
compact approved by the Congress, or any other agency of two or 
more States, having substantial powers or duties pertaining to 
the control of pollution as determined and approved by the 
Adminstrator.
      (3) The term ``State'' means a State, the District of 
Columbia, the Commonwealth of Puerto Rico, the Virgin Islands, 
Guam, American Samoa, the Commonwealth of the Northern Mariana 
Islands, and the Trust Territory of the Pacific Islands.
      (4) The term ``municipality'' means a city, town, 
borough, county, parish, district, association, or other public 
body created by or pursuant to State law and having 
jurisdiction over disposal of sewage, industrial wastes, or 
other wastes, or an Indian tribe or an authorized Indian tribal 
organization, or a designated and approved management agency 
under section 208 of this Act.
      (5) The term ``person'' means an individual, corporation, 
partnership, association, State, municipality, commission, or 
political subdivision of a State, or any interstate body.
      (6) The term ``pollutant'' means dredged spoil, solid 
waste, incinerator residue, sewage, garbage, sewage sludge, 
munitions, chemical wastes, biological materials, radioactive 
materials, heat, wrecked or discarded equipment, rock, sand, 
cellar dirt and industrial, municipal, and agricultural waste 
discharged into water. This term does not mean (A) ``sewage 
from vessels or a discharge incidental to the normal operation 
of a vessel of the Armed Forces'' within the meaning of section 
312 of this Act; or (B) water, gas, or other material which is 
injected into a well to facilitate production of oil or gas, or 
water derived in association with oil or gas production and 
disposed of in a well, if the well used either to facilitate 
production or for disposal purpose is approved by authority of 
the State in which the well is located, and if such State 
determines that such injection or disposal will not result in 
the degradation of ground or surface water resources.
      (7) The term ``navigable waters'' means the waters of the 
United States, including the territorial seas.
      (8) The term ``territorial seas'' means the belt of the 
seas measured from the line of ordinary low water along that 
portion of the coast which is in direct contact with the open 
sea and the line marking the seaward limit of inland waters, 
and extending seaward a distance of three miles.
      (9) The term ``contiguous zone'' means the entire zone 
established or to be established by the United States under 
article 24 of the Convention of the Territorial Sea and the 
Contiguous Zone.
      (10) The term ``ocean'' means any portion of the high 
seas beyond the contiguous zone.
      (11) The term ``effluent limitation'' means any 
restriction established by a State or the Administrator on 
quantities, rates, and concentrations of chemical, physical, 
biological, and other constituents which are discharged from 
point sources into navigable waters, the waters of the 
contiguous zone, or the ocean, including schedules of 
compliance.
      (12) The term ``discharge of a pollutant'' and the term 
``discharge of pollutants'' each means (A) any addition of any 
pollutant to navigable waters from any point source, (B) any 
addition of any pollutant to the waters of the contiguous zone 
or the ocean from any point source other than a vessel or other 
floating craft.
      (13) The term ``toxic pollutant'' means those pollutants, 
or combinations of pollutants, including disease-causing 
agents, which after discharge and upon exposure, ingestion, 
inhalation or assimilation into any organism, either directly 
from the environment or indirectly by ingestion through food 
chains, will, on the basis of information available to the 
Administrator, cause death, disease, behavioral abnormalities, 
cancer, genetic mutations, physiological malfunctions 
(including malfunctions in reproduction) or physical 
deformations, in such organisms or their offspring.
      (14) The term ``point source'' means any discernible, 
confined and discrete conveyance, including but not limited to 
any pipe, ditch, channel, tunnel, conduit, well, discrete 
fissure, container, rolling stock, concentrated animal feeding 
operation, or vessel or other floating craft, from which 
pollutants are or may be discharged. This term does not include 
agricultural stormwater discharges and return flows from 
irrigated agriculture.
      (15) The term ``biological monitoring'' shall mean the 
determination of the effects on aquatic life, including 
accumulation of pollutants in tissue, in receiving waters due 
to the discharge of pollutants (A) by techniques and 
procedures, including sampling of organisms representative of 
appropriate levels of the food chain appropriate to the volume 
and the physical, chemical, and biological characteristics of 
the effluent, and (B) at appropriate frequencies and locations.
      (16) The term ``discharge'' when used without 
qualification includes a discharge of a pollutant, and a 
discharge of pollutants.
      (17) The term ``schedule of compliance'' means a schedule 
of remedial measures including an enforceable sequence of 
actions or operations leading to compliance with an effluent 
limitation, other limitation, prohibition, or standard.
      (18) The term ``industrial user'' means those industries 
identified in the Standard Industrial Classification Manual, 
Bureau of the Budget, 1967, as amended and supplemented, under 
the category ``Division D--Manufacturing'' and such other 
classes of significant waste producers as, by regulation, the 
Administrator deems appropriate.
      (19) The term ``pollution'' means the man-made or man-
induced alteration of the chemical, physical, biological, and 
radiological integrity of water.
      (20) The term ``medical waste'' means isolation wastes; 
infectious agents; human blood and blood products; pathological 
wastes; sharps; body parts; contaminated bedding; surgical 
wastes and potentially contaminated laboratory wastes; dialysis 
wastes; and such additional medical items as the Administrator 
shall prescribe by regulation.
    (21) Coastal recreation waters.--
            (A) In general.--The term ``coastal recreation 
        waters'' means--
                    (i) the Great Lakes; and
                    (ii) marine coastal waters (including 
                coastal estuaries) that are designated under 
                section 303(c) by a State for use for swimming, 
                bathing, surfing, or similar water contact 
                activities.
            (B) Exclusions.--The term ``coastal recreation 
        waters'' does not include--
                    (i) inland waters; or
                    (ii) waters upstream of the mouth of a 
                river or stream having an unimpaired natural 
                connection with the open sea.
    (22) Floatable material.--
            (A) In general.--The term ``floatable material'' 
        means any foreign matter that may float or remain 
        suspended in the water column.
            (B) Inclusions.--The term ``floatable material'' 
        includes--
                    (i) plastic;
                    (ii) aluminum cans;
                    (iii) wood products;
                    (iv) bottles; and
                    (v) paper products.
    (23) Pathogen indicator.--The term ``pathogen indicator'' 
means a substance that indicates the potential for human 
infectious disease.
    (24) Disadvantaged community.--The term ``disadvantaged 
community'' means a community or entity that meets 
affordability criteria established, after public review and 
comment, by the State in which the community or entity is 
located.
    (25) Disadvantaged user.--The term ``disadvantaged user'' 
means a person that meets affordability criteria established, 
after public review and comment, by the State in which the 
person resides.
    (26) Small treatment works.--The term ``small treatment 
works'' means a treatment works (as defined in section 212) 
serving a population of 10,000 or fewer individuals.

           *       *       *       *       *       *       *


SEC. 518. INDIAN TRIBES.

      (a) Policy.--Nothing in this section shall be construed 
to affect the application of section 101(g) of this Act, and 
all of the provisions of this section shall be carried out in 
accordance with the provisions of such section 101(g). Indian 
tribes shall be treated as States for purposes of such section 
101(g).
      (b) Assessment of Sewage Treatment Needs; Report.--The 
Administrator, in cooperation with the Director of the Indian 
Health Service, shall assess the need for sewage treatment 
works to serve Indian tribes, the degree to which such needs 
will be met through funds allotted to States under section 205 
of this Act and priority lists under section 216 of this Act, 
and any obstacles which prevent such needs from being met. Not 
later than one year after the date of the enactment of this 
section, the Administrator shall submit a report to Congress on 
the assessment under this subsection, along with 
recommendations specifying (1) how the Administrator intends to 
provide assistance to Indian tribes to develop waste treatment 
management plans and to construct treatment works under this 
Act, and (2) methods by which the participation in and 
administration of programs under this Act by Indian tribes can 
be maximized.
      [(c) Reservation of Funds.--The Administrator shall 
reserve each fiscal year beginning after September 30, 1986, 
before allotments to the States under section 205(e), one-half 
of one percent of the sums appropriated under section 207. Sums 
reserved under this subsection shall be available only for 
grants for the develoment of waste treatment management plans 
and for the construction of sewage treatment works to serve 
Indian tribes, as defined in subsection (h) and former Indian 
reservations in Oklahoma (as determined by the Secretary of the 
Interior) and Alaska Native Villages as defined in Public Law 
92-203.]
    (c) Reservation of Funds.--
            (1) In general.--For fiscal year 1987 and each 
        fiscal year thereafter, the Administrator shall 
        reserve, before allotments to the States under section 
        604(a), not less than 0.5 percent nor more than 1.5 
        percent of the funds made available under section 607.
            (2) Use of funds.--Funds reserved under this 
        subsection shall be available only for grants for the 
        development of waste treatment management plans, and 
        for the construction of sewage treatment works, to 
        serve--
                    (A) Indian tribes;
                    (B) former Indian reservations in Oklahoma 
                (as determined by the Secretary of the 
                Interior); and
                    (C) Native villages (as defined in section 
                3 of the Alaska Native Claims Settlement Act 
                (43 U.S.C. 1602)).
      (d) Cooperative Agreements.--In order to ensure the 
consistent implementation of the requirements of this Act, an 
Indian tribe and the State or States in which the lands of such 
tribe are located may enter into a cooperative agreement, 
subject to the review and approval of the Administrator, to 
jointly plan and administer the requirements of this Act.
      (e) Treatment as States.--The Administrator is authorized 
to treat an Indian tribe as a State for purposes of title II 
and sections 104, 106, 303, 305, 308, 309, 314, 319, 401, 402, 
404, and 406 of this Act to the degree necessary to carry out 
the objectives of this section, but only if--
            (1) the Indian tribe has a governing body carrying 
        out substantial governmental duties and powers;
            (2) the functions to be exercised by the Indian 
        tribe pertain to the management and protection of water 
        resources which are held by an Indian tribe, held by 
        the United States in trust for Indians, held by a 
        member of an Indian tribe if such property interest is 
        subject to a trust restriction on alienation, or 
        otherwise within the borders of an Indian reservation; 
        and
            (3) the Indian tribe is reasonably expected to be 
        capable, in the Administrator's judgment, of carrying 
        out the functions to be exercised in a manner 
        consistent with the terms and purposes of this Act and 
        of all applicable regulations.
Such treatment as a State may include the direct provision of 
funds reserved under subsection (c) to the governing bodies of 
Indian tribes, and the determination of priorities by Indian 
tribes, where not determined by the Administrator in 
cooperation with the Director of the Indian Health Service. The 
Administrator, in cooperation with the Director of the Indian 
Health Service, is authorized to make grants under title II of 
this Act in an amount not to exceed 100 percent of the cost of 
a project. Not later than 18 months after the date of the 
enactment of this section, the Administrator shall, in 
consultation with Indian tribes, promulgate final regulations 
which specify how Indian tribes shall be treated as States for 
purposes of this Act. The Administrator shall, in promulgating 
such regulations, consult affected States sharing common water 
bodies and provide a mechanism for the resolution of any 
unreasonable consequences that may arise as a result of 
differing water quality standards that may be set by States and 
Indian tribes located on common bodies of water. Such mechanism 
shall provide for explicit consideration of relevant factors 
including, but not limited to, the effects of differing water 
quality permit requirements on upstream and downstream 
dischargers, economic impacts, and present and historical uses 
and quality of the waters subject to such standards. Such 
mechanism should provide for the avoidance of such unreasonable 
consequences in a manner consistent with the objective of this 
Act.
      (f) Grants for Nonpoint Source Programs.--The 
Administrator shall make grants to an Indian tribe under 
section 319 of this Act as though such tribe was a State. Not 
more than one-third of one percent of the amount appropriated 
for any fiscal year under section 319 may be used to make 
grants under this subsection. In addition to the requirements 
of section 319, an Indian tribe shall be required to meet the 
requirements of paragraphs (1), (2), and (3) of subsection (d) 
\1\ of this section in order to receive such a grant.
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    \1\ Probably should be subsection (e).
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      (g) Alaska Native Organizations.--No provision of this 
Act shall be construed to--
            (1) grant, enlarge, or diminish, or in any way 
        affect the scope of the governmental authority, if any, 
        of any Alaska Native organization, including any 
        federally-recognized tribe, traditional Alaska Native 
        council, or Native council organized pursuant to the 
        Act of June 18, 1934 (48 Stat. 987), over lands or 
        persons in Alaska;
            (2) create or validate any assertion by such 
        organization or any form of governmental authority over 
        lands or persons in Alaska; or
            (3) in any way affect any assertion that Indian 
        country, as defined in section 1151 of title 18, United 
        States Code, exists or does not exist in Alaska.
      (h) Definitions.--For purposes of this section, the 
term--
            (1) ``Federal Indian reservation'' means all land 
        within the limits of any Indian reservation under the 
        jurisdiction of the United States Government, 
        notwithstanding the issuance of any patent, and 
        including rights-of-way running through the 
        reservation; and
            (2) ``Indian tribe'' means any Indian tribe, band, 
        group, or community recognized by the Secretary of the 
        Interior and exercising governmental authority over a 
        Federal Indian reservation.

           *       *       *       *       *       *       *


        TITLE VI--STATE WATER POLLUTION CONTROL REVOLVING FUNDS

SEC. 601. GRANTS TO STATES FOR ESTABLISHMENT OF REVOLVING FUNDS.

      (a) General Authority.--Subject to the provisions of this 
title, the Administrator shall make capitalization grants to 
each State for the purpose of establishing a water pollution 
control revolving fund [for providing assistance (1) for 
construction of treatment works (as defined in section 212 of 
this Act) which are publicly owned, (2) for implementing a 
management program under section 319, and (3) for developing 
and implementing a conservation and management plan under 
section 320] for providing assistance for eligible projects in 
accordance with section 603(c).

           *       *       *       *       *       *       *


SEC. 602. CAPITALIZATION GRANT AGREEMENTS.

      (a) General Rule.--To receive a capitalization grant with 
funds made available under this title and section 205(m) of 
this Act, a State shall enter into an agreement with the 
Administrator which shall include but not be limited to the 
specifications set forth in subsection (b) of this section.
      (b) Specific Requirements.--The Administrator shall enter 
into an agreement under this section with a State only after 
the State has established to the satisfaction of the 
Administrator that--
            (1) the State will accept grant payments with funds 
        to be made available under this title and section 
        205(m) of this Act in accordance with a payment 
        schedule established jointly by the Administrator under 
        section 601(b) of this Act and will deposit all such 
        payments in the water pollution control revolving fund 
        established by the State in accordance with this title;
            (2) the State will deposit in the fund from State 
        moneys an amount equal to at least 20 percent of the 
        total amount of all capitalization grants which will be 
        made to the State with funds to be made available under 
        this title and section 205(m) of this Act on or before 
        the date on which each quarterly grant payment will be 
        made to the State under this title;
            (3) the State will enter into binding commitments 
        to provide assistance in accordance with the 
        requirements of this title in an amount equal to 120 
        percent of the amount of each such grant payment within 
        1 year after the receipt of such grant payment;
            (4) all funds in the fund will be expended in an 
        expeditious and timely manner;
            (5) all funds in the fund as a result of 
        capitalization grants under this title and section 
        205(m) of this Act will first be used to assure 
        maintenance of progress, as determined by the Governor 
        of the State, toward compliance with enforceable 
        deadlines, goals, and requirements of this Act, 
        including the municipal compliance deadline;
            [(6) treatment works eligible under section 
        603(c)(1) of this Act which will be constructed in 
        whole or in part before fiscal year 1995 with funds 
        directly made available by capitalization grants under 
        this title and section 205(m) of this Act will meet the 
        requirements of, or otherwise be treated (as determined 
        by the Governor of the State) under sections 201(b), 
        201(g)(1), 201(g)(2), 201(g)(3), 201(g)(5), 201(g)(6), 
        201(n)(1), 201(o), 204(a)(1), 204(a)(2), 204(b)(1), 
        204(d)(2), 211, 218, 511(c)(1), and 513 of this Act in 
        the same manner as treatment works constructed with 
        assistance under title II of this Act;]
            (6) treatment works eligible under section 
        603(c)(1) that are constructed, in whole or in part, 
        using funds made available by a State water pollution 
        control revolving loan fund under this title and 
        section 205(m) will meet the requirements of sections 
        211, 511(c)(1), and 513 in the same manner as treatment 
        works constructed using assistance provided under title 
        II;
            (7) in addition to complying with the requirements 
        of this title, the State will commit or expend each 
        quarterly grant payment which it will receive under 
        this title in accordance with laws and procedures 
        applicable to the commitment or expenditure of revenues 
        of the State;
            (8) in carrying out the requirements of section 606 
        of this Act, the State will use accounting, audit, and 
        fiscal procedures conforming to generally accepted 
        government accounting standards;
            (9) the State will require as a condition of making 
        a loan or providing other assistance, as described in 
        section 603(d) of this Act, from the fund that the 
        recipient of such assistance will maintain project 
        accounts in accordance with generally accepted 
        government accounting standards; and
            (10) the State will make annual reports to the 
        Administrator on the actual use of funds in accordance 
        with section 606(d) of this Act.

           *       *       *       *       *       *       *


SEC. 603. WATER POLLUTION CONTROL REVOLVING LOAN FUNDS. \1\

      (a) Requirements forObligation of Grant Funds.--Before a 
State may receive a capitalization grant with funds made 
available under this title and section 205(m) of this Act, the 
State shall first establish a water pollution control revolving 
fund which complies with the requirements of this section.
---------------------------------------------------------------------------
    \1\ See section 104B of the Marine Protection, Research and 
Sanctuaries Act of 1972 (33 U.S.C. 1414G) for additional amounts that 
are to be deposited into a State's fund and treatment of such deposits.
---------------------------------------------------------------------------
      (b) Administrator.--Each State water pollution control 
revolving fund shall be administered by an instrumentality of 
the State with such powers and limitations as may be required 
to operate such fund in accordance with the requirements and 
objectives of this Act.
      [(c) Projects Eligible for Assistance.--The amounts of 
funds available to each State water pollution control revolving 
fund shall be used only for providing financial assistance (1) 
to any municipality, intermunicipal, interstate, or State 
agency for construction of publicly owned treatment works (as 
defined in section 212 of this Act), (2) for the implementation 
of a management program established under section 319 of this 
Act, and (3) for development and implementation of a 
conservation and management plan under section 320 of this Act. 
The fund shall be established, maintained, and credited with 
repayments, and the fund balance shall be available in 
perpetuity for providing such financial assistance.]
    (c) Projects Eligible for Assistance.--
            (1) In general.--Funds in each State water 
        pollution control revolving fund shall be used only 
        for--
                    (A) providing financial assistance to a 
                municipality, intermunicipal, interstate, or 
                State agency, or private utility that 
                principally treats municipal wastewater or 
                domestic sewage, for construction (including 
                costs for planning, design, associated 
                preconstruction, and necessary activities for 
                siting the facility and related elements) of 
                treatment works (as defined in section 212);
                    (B) implementation of a management program 
                established under section 319;
                    (C) development and implementation of a 
                conservation and management plan under section 
                320;
                    (D) water conservation projects or 
                activities the primary purpose of which is the 
                protection, preservation, or enhancement of 
                water quality;
                    (E) reuse, reclamation, or recycling 
                projects the primary purpose of which is the 
                protection, preservation, or enhancement of 
                water quality;
                    (F) water conservation improvement projects 
                the primary purpose of which (as determined by 
                the State) is the protection, preservation, or 
                enhancement of water quality, including 
                through--
                            (i) piping or lining of an 
                        irrigation canal;
                            (ii) recovery or recycling of 
                        wastewater or tailwater;
                            (iii) irrigation scheduling;
                            (iv) measurement or metering of 
                        water use; or
                            (v) improvement of on-field 
                        irrigation efficiency;
                    (G) projects to increase the security of 
                wastewater treatment works (excluding any 
                expenditure for operations or maintenance); or
                    (H) measures to control municipal 
                stormwater, the primary purpose of which is the 
                preservation, protection, or enhancement of 
                water quality.
            (2) Maintenance of fund.--
                    (A) In general.--Each fund shall be 
                established, maintained, and credited with 
                repayments.
                    (B) Availability.--Any balances in a fund 
                shall be available in perpetuity for providing 
                financial assistance described in paragraph 
                (1).
            (3) Approaches.--A project eligible under paragraph 
        (1) to receive assistance from a State water pollution 
        control revolving fund under this title may include a 
        project that uses 1 or more nontraditional approaches 
        (such as land conservation, low-impact development 
        technologies, beneficial reuse of brownfields, 
        watershed management actions, decentralized wastewater 
        treatment innovations, and other nonpoint best 
        management practices), if the primary purpose of the 
        project is the preservation, protection, or enhancement 
        of water quality.
      (d) Types of Assistance.--Except as otherwise limited by 
State law, a water pollution control revolving fund of a State 
under this section may be used only--
            (1) to make loans, on the condition that--
                    (A) such loans are made at or below market 
                interest rates, including interest free loans[, 
                at terms not to exceed 20 years];
                    [(B) annual principal and interest payments 
                will commence not later than 1 year after 
                completion of any project and all loans will be 
                fully amortized not later than 20 years after 
                project completion;]
                    (B)(i)(I) annual principal and interest 
                payments will commence not later than 1 year 
                after the date of completion of any project for 
                which the loan was provided;
                    (II) each loan will be fully amortized not 
                later than 30 years after the date of 
                completion of the project for which the loan is 
                provided; and
                    (III) the term of each loan will not exceed 
                the expected design life of the project for 
                which the loan was provided; and
                    (ii) in the case of a loan provided to a 
                disadvantaged community, a State may provide an 
                extended term for the loan if the extended 
                term--
                            (I) terminates not later than the 
                        date that is 40 years after the date of 
                        completion of the project for which the 
                        loan was provided; and
                            (II) does not exceed the expected 
                        design life of the project;
                    (C) the recipient of a loan will establish 
                a dedicated source of revenue, or, in the case 
                of a privately owned treatment works, 
                demonstrate that adequate security for the loan 
                exists, for repayment of loans; and
                    (D) the State water pollution control 
                revolving loan fund will be credited with all 
                payments of principal and interest on all 
                loans;
            (2) to buy or refinance the debt obligation of 
        municipalities and intermunicipal and interstate 
        agencies within the State at or below market rates, 
        where such debt obligations were incurred after March 
        7, 1985;
            (3) to guarantee, or purchase insurance for, local 
        obligations where such action would improve credit 
        market access or reduce interest rates;
            (4) as a source of revenue or security for the 
        payment of principal and interest on revenue or general 
        obligation bonds issued by the State if the proceeds of 
        the sale of such bonds will be deposited in the fund;
            (5) to provide loan guarantees for similar 
        revolving funds established by municipalities or 
        intermunicipal agencies;
            (6) to earn interest on fund accounts; [and]
            (7) subject to subsection (e)(2), by a State to 
        provide additional subsidization (including forgiveness 
        of principal)--
                    (A) to 1 or more treatment works, for use 
                in developing capacity described in subsection 
                (i)(2)(A) in accordance with subsection (i); or
                    (B) for a project described in subsection 
                (c)(3);
            (8) subject to subsection (e)(2), by a State to 
        provide additional subsidization (including forgiveness 
        of principal) to 1 or more treatment works for a 
        purpose other than a purpose specified in paragraph (7) 
        or (9), except that--
                    (A) for the first fiscal year that begins 
                after the date of enactment of this paragraph 
                and each fiscal year thereafter, the total 
                amount of subsidization provided by a State 
                under this paragraph shall not exceed 15 
                percent of the amount of all capitalization 
                grants received by the State for the fiscal 
                year under this title;
                    (B) notwithstanding section 204(b)(1)--
                            (i) as a condition of receiving 
                        additional subsidization under this 
                        paragraph, each recipient of assistance 
                        shall demonstrate and document to the 
                        State that additional subsidization 
                        provided under this paragraph will be 
                        directed, to the maximum extent 
                        practicable, through the user charge 
                        rate system or a similar program, to 
                        disadvantaged users within the 
                        residential user class of the community 
                        in which the treatment works is 
                        located; and
                            (ii) the Administrator may provide 
                        information to assist States in 
                        identifying disadvantaged users 
                        described in clause (i); and
                    (C) a disadvantaged user located within a 
                community that receives assistance as a 
                disadvantaged community under paragraph (9) 
                shall not be eligible for assistance under this 
                paragraph;
            (9) subject to subsection (e)(2), by the State to 
        provide additional subsidization (including forgiveness 
        of principal) to a disadvantaged community, or to a 
        community or entity that the State expects to become a 
        disadvantaged community as the result of a proposed 
        project, that receives a loan from the State under this 
        title;
            (10) to provide to small treatment works (in an 
        amount not to exceed, in the aggregate, 2 percent of 
        the amount of all capitalization grants received by the 
        State for the fiscal year under this title)--
                    (A) technical and planning assistance; and
                    (B) assistance in--
                            (i) financial management;
                            (ii) user fee analysis;
                            (iii) budgeting;
                            (iv) capital improvement planning;
                            (v) repair scheduling; and
                            (vi) other similar activities 
                        relating to water quality improvement; 
                        and'';
            [(7)] (11) for the reasonable costs of 
        administering the fund and conducting activities under 
        this title, except [that such amounts shall not exceed 
        4] that, beginning in fiscal year 2003, those amounts 
        shall not exceed 6 percent of all grant awards to such 
        fund under this title.
      [(e) Limitation To Prevent Double Benefits.--If a State]
    (e) Limitations.--
            (1) Prevention of double benefits.--If a State 
        makes, from its water pollution revolving fund, a loan 
        which will finance the cost of facility planning and 
        the preparation of plans, specifications, and estimates 
        for construction of publicly owned treatment works, the 
        State shall ensure that if the recipient of such loan 
        receives a grant under section 201(g) of this Act for 
        construction of such treatment works and an allowance 
        under section 201(l)(1) of this Act for non-federal 
        funds expended for such planning and preparation, such 
        recipient will promptly repay such loan to the extent 
        of such allowance.
            (2) Total amount of subsidies.--For each fiscal 
        year, the total amount used by a State under paragraphs 
        (7), (8), and (9) of subsection (d) may not exceed 30 
        percent of the amount of all capitalization grants 
        received by the State for the fiscal year.
      (f) Consistency With Planning Requirements.--[A State 
may]
            (1) In general.--A State may provide financial 
        assistance from its water pollution control revolving 
        fund only with respect to a project which is consistent 
        with plans, if any, developed under sections 205(j), 
        208, 303(e), 319, and [320 of this Act] 320.
            (2) Community development.--As a condition of 
        receiving assistance under this section, a recipient 
        shall demonstrate and document to the State that the 
        recipient, in using the assistance, will consult and 
        coordinate with, as appropriate, agencies with 
        authority to develop--
                    (A) local land use plans;
                    (B) regional transportation improvement and 
                long-range transportation plans; and
                    (C) State, regional, and municipal 
                watershed plans.
      [(g) Priority List Requirement.--The State may provide 
financial assistance from its water pollution control revolving 
fund only with respect to a project for construction of a 
treatment works described in subsection (c)(1) if such project 
is on the State's priority list under section 216 of this Act. 
Such assistance may be provided regardless of the rank of such 
project on such list.]
    (g) Priority System Requirement.--
            (1) Definition of state agency.--In this 
        subsection, the term `State agency' means the agency of 
        a State having jurisdiction over water quality 
        management (including the establishment of water 
        quality standards).
            (2) Development.--
                    (A) In general.--Notwithstanding section 
                216, each State agency shall develop and 
                periodically update a project priority system 
                for use in prioritizing projects that are 
                eligible to receive funding from the water 
                pollution control revolving fund of the State 
                in accordance with subsection (c).
                    (B) Requirements.--In developing the 
                project priority system, a State agency shall--
                            (i) take into consideration all 
                        chemical, physical, and biological data 
                        (including data relating to subsections 
                        (d) and (e) of section 303 and section 
                        305(b)) that are--
                                    (I) reasonably available to 
                                the State from public and 
                                private sources; and
                                    (II) determined by the 
                                State to be of sufficient 
                                quality; and
                            (ii) provide for public notice and 
                        opportunity for comment.
            (3) Summary of projects.--
                    (A) In general.--Each State agency, after 
                public notice and opportunity for comment, 
                shall biennially publish a description, in 
                summary form, of projects in the State that are 
                eligible for assistance under this title.
                    (B) Inclusions.--The summary under 
                subparagraph (A) shall include--
                            (i) the priority assigned to each 
                        project under the priority system of 
                        the State developed under paragraph 
                        (2); and
                            (ii) the funding schedule for each 
                        project, to the extent that such 
                        information is available.
            (4) Statement of policy.--It is the policy of the 
        United States that projects in a State that are carried 
        out using assistance provided under this title shall be 
        funded, to the maximum extent practicable, through a 
        project priority system of the State that, as 
        determined by the State, is designed to achieve optimum 
        water quality management, consistent with the public 
        health and water quality goals and requirements of this 
        Act.
      (h) Eligibility of Non-Federal Share of Construction 
Grant Projects.--A State water pollution control revolving fund 
may provide assistance (other than under subsection (d)(1) of 
this section) to a municipality or intermunicipal or interstate 
agency with respect to the non-Federal share of the costs of a 
treatment works project for which such municipality or agency 
is receiving assistance from the Administrator under any other 
authority only if such assistance is necessary to allow such 
project to proceed.
    (i) Technical, Managerial, and Financial Capacity for 
Optimal Performance.--
            (1) Definition of state agency.--In this section, 
        the term `State agency' has the meaning given the term 
        in subsection (g)(1).
            (2) Strategy.--
                    (A) In general.--Not later than 3 years 
                after the date of enactment of this subsection, 
                each State agency shall develop and implement a 
                strategy to assist treatment works in the State 
                receiving assistance under this title in--
                            (i) attaining and maintaining 
                        technical, managerial, operations, 
                        maintenance, and financial capacity; 
                        and
                            (ii) meeting and sustaining 
                        compliance with applicable Federal and 
                        State laws.
                    (B) Requirements.--In developing the 
                strategy under this paragraph, the State shall 
                consider, solicit public comment on, and 
                include in the strategy a description of, the 
                manner in which the State intends to use the 
                authorities and resources of the State to 
                assist treatment works in attaining and 
                maintaining the capacity described in 
                subparagraph (A)(i).
            (3) Condition for receipt of assistance.--
                    (A) In general.--Except as provided in 
                subparagraph (B) and subsection (k), beginning 
                on the date that is 4 years after the date of 
                enactment of this subsection, each treatment 
                works shall, as a condition of receiving 
                assistance under this title, demonstrate and 
                document to the State that provides the 
                assistance adequate capacity described in 
                paragraph (2)(A)(i), including, for each 
                treatment works that receives, in the 
                aggregate, more than $500,000 under this title 
                for any fiscal year, the establishment and 
                implementation by the treatment works of an 
                asset management plan (for which the 
                Administrator may publish information to assist 
                States in determining required content) that--
                            (i) conforms to generally accepted 
                        industry practices; and
                            (ii) includes--
                                    (I) an inventory of 
                                existing assets (including an 
                                estimate of the useful life of 
                                those assets); and
                                    (II) an optimal schedule of 
                                operations, maintenance, and 
                                capital investment required to 
                                meet and sustain performance 
                                objectives for the treatment 
                                works established in accordance 
                                with this Act and other 
                                applicable Federal and State 
                                laws over the useful life of 
                                the treatment works.
                    (B) Exception.--Notwithstanding 
                subparagraph (A), a treatment works may receive 
                assistance under this title if the State 
                determines that the assistance would enable the 
                treatment works to attain adequate capacity 
                described in paragraph (2)(A)(i).
                    (C) Noncompliance.--
                            (i) In general.--Except as provided 
                        in clause (ii), no assistance, except 
                        for assistance that is to be used by a 
                        treatment works solely for planning, 
                        design, or security purposes, shall be 
                        provided under this title to a 
                        treatment works that is in significant 
                        noncompliance with any requirement of 
                        this Act, unless the treatment works is 
                        in compliance with, or has entered 
                        into, an enforceable administrative or 
                        judicial order to effect compliance 
                        with those requirements.
                            (ii) Exception.--A treatment works 
                        that is determined under clause (i) to 
                        be in significant noncompliance with 
                        the requirements described in clause 
                        (i) may receive assistance under this 
                        title if the State providing the 
                        assistance determines that the use of 
                        assistance would enable the treatment 
                        works to take corrective action 
                        sufficient to remedy the violations on 
                        which the determination of significant 
                        noncompliance was based.
    (j) Restructuring.--Notwithstanding section 204(b)(1), 
except as provided in subsection (k), as a condition of 
receiving assistance under this section, a treatment works 
shall demonstrate and document to the State that the treatment 
works--
            (1) has considered--
                    (A) consolidating management functions or 
                ownership with another facility;
                    (B) forming cooperative partnerships; and
                    (C) using methodologies or technologies 
                that may be more environmentally sensitive; and
            (2) if the treatment works receives, in the 
        aggregate, more than $500,000 under this title for any 
        fiscal year, has in effect a plan to achieve, within a 
        reasonable period of time, a rate structure that, to 
        the maximum extent practicable--
                    (A) reflects the actual cost of service 
                provided by the treatment works; and
                    (B) addresses capital replacement funds; 
                and
            (3) has in effect, or will have in effect on 
        completion of the project, an asset management plan 
        described in subsection (i)(3)(A).
    (k) Exemptions for Assistance.--Subsections (i)(3) and (j) 
shall not apply to assistance provided under this title that is 
to be used by a treatment works solely for--
            (1) planning;
            (2) design;
            (3) security measures that do not result in 
        significant capital expenditures (as defined by a State 
        in accordance with guidance provided by the 
        Administrator); or
            (4) preconstruction activities.
    (l) Technical Assistance.--
            (1) Definition of qualified nonprofit technical 
        assistance provider.--In this subsection, the term 
        `qualified nonprofit technical assistance provider' 
        means a nonprofit entity that provides technical 
        assistance (such as circuit-rider programs, training, 
        and preliminary engineering evaluations) to treatment 
        works that--
                    (A) serve not more than 3,300 users; and
                    (B) are located in a rural area.
            (2) Grant program.--
                    (A) In general.--The Administrator may make 
                grants to a qualified nonprofit technical 
                assistance provider that is qualified to 
                provide technical assistance on a broad range 
                of approaches described in subsection (c) for 
                use in assisting small treatment works in 
                planning, developing, and obtaining financing 
                for eligible projects described in subsection 
                (c).
                    (B) Distribution of grants.--In carrying 
                out this subsection, the Administrator shall 
                ensure, to the maximum extent practicable, that 
                technical assistance provided using funds from 
                a grant under subparagraph (A) is made 
                available in each State.
                    (C) Consultation.--As a condition of 
                receiving a grant under this subsection, a 
                qualified nonprofit technical assistance 
                provider shall consult with each State in which 
                grant funds are to be expended or otherwise 
                made available before the grant funds are 
                expended or made available in the State.
            (3) Authorization of appropriations.--There is 
        authorized to be appropriated to carry out this 
        subsection $7,000,000 for each of fiscal years 2003 
        through 2007.
    (m) Transfer of Funds.--
            (1) In general.--A Governor of the State may--
                    (A)(i) reserve up to 33 percent of a 
                capitalization grant made under this title for 
                a fiscal year;
                    (ii) add the funds reserved to any funds 
                provided to the State under section 1452 of the 
                Safe Drinking Water Act (42 U.S.C. 300j-12); 
                and
                    (iii) use the funds to carry out that 
                section; and
                    (B)(i) reserve in any fiscal year an amount 
                up to the amount that may be reserved under 
                subparagraph (A) for that fiscal year from 
                capitalization grants made under section 1452 
                of that Act (42 U.S.C. 300j-12);
                    (ii) add the reserved funds to any funds 
                provided to the State under this title; and
                    (iii) use the funds to carry out this 
                title.
            (2) State match.--Funds reserved under this 
        subsection shall not be considered to be a State 
        contribution for a capitalization grant required under 
        this title or section 1452(b) of the Safe Drinking 
        Water Act (42 U.S.C. 300j-12(b)).

SEC. 604. ALLOTMENT OF FUNDS.

      [(a) Formula.--Sums authorized to be appropriated to 
carry out this section for each of fiscal years 1989 and 1990 
shall be allotted by the Administrator in accordance with 
section 205(c) of this Act.]
    (a) Allocation Formula.--
            (1) Definitions.--In this subsection:
                    (A) Existing formula.--The term `existing 
                formula' means a formula for the allotment of 
                funds made available to carry out this section 
                for a fiscal year to States in accordance with 
                section 205(c)(3).
                    (B) Needs formula.--The term `needs 
                formula' means a formula for the allotment of 
                funds made available to carry out this section 
                for a fiscal year to States--
                            (i) in amounts determined by the 
                        Administrator based on the ratio that--
                                    (I) the needs of a State 
                                described in categories I 
                                through VI of the most recent 
                                needs survey conducted under 
                                section 516(2); bears to
                                    (II) the needs of all 
                                States described in categories 
                                I through VI of the most recent 
                                needs survey conducted under 
                                section 516(2); but
                            (ii) under which the minimum 
                        proportionate share of each State is 
                        0.7 percent.
            (2) Allocation.--
                    (A) Amounts less than or equal to 
                $1,350,000,000.--Except as provided in 
                subparagraph (B) and subject to paragraph (4), 
                funds made available to carry out this section 
                for a fiscal year, not to exceed 
                $1,350,000,000, shall be allocated by the 
                Administrator as follows:
                            (i) Fiscal year 2003.--For fiscal 
                        year 2003--
                                    (I) 50 percent shall be 
                                allocated in accordance with 
                                the existing formula; and
                                    (II) 50 percent shall be 
                                allocated in accordance with 
                                the needs formula.
                            (ii) Fiscal year 2004.--For fiscal 
                        year 2004--
                                    (I) 37.5 percent shall be 
                                allocated in accordance with 
                                the existing formula; and
                                    (II) 62.5 percent shall be 
                                allocated in accordance with 
                                the needs formula.
                            (iii) Fiscal year 2005.--For fiscal 
                        year 2005--
                                    (I) 25 percent shall be 
                                allocated in accordance with 
                                the existing formula; and
                                    (II) 75 percent shall be 
                                allocated in accordance with 
                                the needs formula.
                            (iv) Fiscal year 2006.--For fiscal 
                        year 2006--
                                    (I) 12.5 percent shall be 
                                allocated in accordance with 
                                the existing formula; and
                                    (II) 87.5 percent shall be 
                                allocated in accordance with 
                                the needs formula.
                            (v) Fiscal year 2007.--For fiscal 
                        year 2007 and each fiscal year 
                        thereafter, 100 percent shall be 
                        allocated in accordance with the needs 
                        formula.
                    (B) Transition exception.--If, for any 
                fiscal year, the allocation of funds under 
                subparagraph (A) would result in any other 
                State's receiving, for the fiscal year, an 
                amount of funds under this section that is less 
                than 80 percent or more than 120 percent of the 
                amount of funds received by the State under 
                this section for the preceding fiscal year, all 
                funds made available to carry out this section 
                for the applicable year through fiscal year 
                2007 shall be allocated in accordance with the 
                formula described in subparagraph (C).
                    (C) Transition formula.--The formula 
                described in this subparagraph is a formula for 
                the allotment of funds made available to carry 
                out this section for a fiscal year to each 
                State in an amount that, subject to section 
                518(c)(1) and paragraphs (3) and (4), is equal 
                to the product obtained by multiplying the 
                amount of funds made available to carry out 
                this section for the fiscal year and the sum 
                of--
                            (i) the product obtained by 
                        multiplying--
                                    (I) the percentage of funds 
                                made available to carry out 
                                this section that the State 
                                would receive under the needs 
                                formula for the fiscal year; by
                                    (II) the greatest 
                                percentage of funds that--
                                            (aa) could be 
                                        received by the State 
                                        under the needs formula 
                                        for the fiscal year; 
                                        but
                                            (bb) would not 
                                        result in any State's 
                                        receiving, for the 
                                        fiscal year, an amount 
                                        of funds under this 
                                        section that is less 
                                        than 80 percent or more 
                                        than 120 percent of the 
                                        amount of funds 
                                        received by the State 
                                        under this section in 
                                        the preceding fiscal 
                                        year; and
                            (ii) the product obtained by 
                        multiplying--
                                    (I) the percentage of funds 
                                made available to carry out 
                                this section that the State 
                                would receive under the 
                                existing formula for the fiscal 
                                year; by
                                    (II) the percentage of 
                                funds that the State would 
                                receive under the existing 
                                formula, which is equal to the 
                                difference between--
                                            (aa) 100 percent; 
                                        and
                                            (bb) the percentage 
                                        described in clause 
                                        (i)(II).
                    (D) Amounts greater than $1,350,000,000.--
                Any amount in excess of $1,350,000,000 that is 
                made available to carry out this section for 
                any fiscal year shall be allocated in 
                accordance with the needs formula.
            (3) Small state protection.--
                    (A) In general.--Notwithstanding any other 
                provision of this subsection, the minimum 
                proportionate share of a State described in 
                subparagraph (B) shall be 1 percent.
                    (B) Description of state.--A State 
                described in this subparagraph is a State 
                that--
                            (i) for fiscal year 2002, would 
                        receive under the existing formula more 
                        than 1 percent of the amounts made 
                        available to carry out this section; 
                        and
                            (ii) but for the minimum 
                        proportionate share required under the 
                        needs formula, would receive for any 
                        fiscal year under paragraph (2) an 
                        allotment in an amount that is less 
                        than 0.7 percent of the total amount of 
                        funds made available to carry out this 
                        section for that fiscal year.
            (4) Territories and possessions.--Of the funds made 
        available to carry out this section for a fiscal year, 
        a total of 0.25 percent shall be allocated to Guam, the 
        United States Virgin Islands, American Samoa, and the 
        Commonwealth of the Northern Mariana Islands, to be 
        allocated among those territories and possessions as 
        determined by the Administrator.
            (5) Private utilities.--If a State (or a territory 
        or possession described in paragraph (4)) elects to 
        include the needs of private utilities in the needs 
        survey used to develop the needs formula, the private 
        utilities shall be eligible to receive funds under this 
        title.
      (b) Reservation of Funds for Planning.--Each State shall 
reserve each fiscal year [1 percent] 2 percent of the sums 
allotted to such State under this section for such fiscal year, 
or $100,000, whichever amount is greater, to carry out planning 
under sections 205(j) and 303(e) of this Act.
      (c) Allotment Period.--
            (1) Period of availability for grant award.--Sums 
        allotted to a State under this section for a fiscal 
        year shall be available for obligation by the State 
        during the fiscal year for which sums are authorized 
        and during the following fiscal year.
            (2) Reallotment of unobligated funds.--The amount 
        of any allotment not obligated by the State by the last 
        day of the 2-year period of availability established by 
        paragraph (1) shall be immediately reallotted by the 
        Administrator on the basis of the same ratio as is 
        applicable to sums allotted under title II of this Act 
        for the second fiscal year of such 2-year period. None 
        of the funds reallotted by the Administrator shall be 
        reallotted to any State which has not obligated all 
        sums allotted to such State in the first fiscal year of 
        such 2-year period.

           *       *       *       *       *       *       *


SEC. 606. AUDITS, REPORTS, AND FISCAL CONTROLS; INTENDED USE PLAN.

      (a) Fiscal Control and Auditing Procedures.--Each State 
electing to establish a water pollution control revolving fund 
under this title shall establish fiscal controls and accounting 
procedures sufficient to assure proper accounting during 
appropriate accounting periods for--
            (1) payments received by the fund;
            (2) disbursements made by the fund; and
            (3) fund balances at the beginning and end of the 
        accounting period.
      (b) Annual Federal Audits.--The Administrator shall, at 
least on an annual basis, conduct or require each State to have 
independently conducted reviews and audits as may be deemed 
necessary or appropriate by the Administrator to carry out the 
objectives of this section. Audits of the use of funds 
deposited in the water pollution revolving fund established by 
such State shall be conducted in accordance with the auditing 
procedures of the General Accounting Office, including chapter 
75 of title 31, United States Code.
      (c) Intended Use Plan.--After providing for public 
comment and review (including public outreach), each State 
shall annually prepare a plan identifying the intended uses of 
the amounts available to its water pollution control revolving 
fund. Such intended use plan shall include, but not be limited 
to--
            [(1) a list of those projects for construction of 
        publicly owned treatment works on the State's priority 
        list developed pursuant to section 216 of this Act and 
        a list of activities eligible for assistance under 
        sections 319 and 320 of this Act;]
            (1) a description, in summary form, of the priority 
        projects developed under section 603(g) for which the 
        State intends to provide assistance from the water 
        pollution control revolving fund of the State for the 
        year covered by the plan;
            (2) a description of the short- and long-term goals 
        and objectives of its water pollution control revolving 
        fund;
            (3) information on the activities to be supported, 
        including a description of project categories, 
        discharge requirements under titles III and IV of this 
        Act, terms of financial assistance, and communities 
        served;
            (4) assurances and specific proposals for meeting 
        the requirements of paragraphs (3), (4), (5), and (6) 
        of section 602(b) of this Act; and
            (5) the criteria and method established for the 
        distribution of funds.
      (d) Annual [Report] Reports.--[Beginning the]
            (1) In general.--Beginning in the first fiscal year 
        after the receipt of payments under this title, the 
        State shall provide an annual report to the 
        Administrator describing how the State has met the 
        goals and objectives for the previous fiscal year as 
        identified in the plan prepared for the previous fiscal 
        year pursuant to subsection (c), including 
        identification of loan recipients, loan amounts, and 
        loan terms and similar details on other forms of 
        financial assistance provided from the water pollution 
        control revolving fund.
            (2) Report on technical, managerial, and financial 
        capacity.--Not later than 2 years after the date on 
        which a State first adopts a strategy in accordance 
        with section 603(i)(2), and annually thereafter, the 
        State shall submit to the Administrator a report on the 
        progress made in improving the capacity described in 
        section 603(i)(2)(A)(i) of treatment works in the State 
        (including the progress of the State in complying with 
        the amendments to section 603 made by the Water 
        Investment Act of 2002).
            (3) Availability.--A State that submits a report 
        under this subsection shall make the report available 
        to the public.
      (e) Annual Federal Oversight Review.--The Administrator 
shall conduct an annual oversight review of each State plan 
prepared under subsection (c), each State report prepared under 
subsection (d), and other such materials as are considered 
necessary and appropriate in carrying out the purposes of this 
title. After reasonable notice by the Administrator to the 
State or the recipient of a loan from a water pollution control 
revolving fund, the State or loan recipient shall make 
available to the Administrator such records as the 
Administrator reasonably requires to review and determine 
compliance with this title.
      (f) Applicability of Title II Provisions.--Except to the 
extent provided in this title, the provisions of title II shall 
not apply to grants under this title.

SEC. 607. AUTHORIZATION OF APPROPRIATIONS.

      [There is authorized to be appropriated to carry out the 
purposes of this title the following sums:
            [(1) $1,200,000,000 per fiscal year for each of 
        fiscal year 1989 and 1990;
            [(2) $2,400,000,000 for fiscal year 1991;
            [(3) $1,800,000,000 for fiscal year 1992;
            [(4) $1,200,000,000 for fiscal year 1993; and
            [(5) $600,000,000 for fiscal year 1994.]
    (a) In General.--There are authorized to be appropriated to 
carry out this title--
            (1) $3,200,000,000 for each of fiscal years 2003 
        and 2004;
            (2) $3,600,000,000 for fiscal year 2005;
            (3) $4,000,000,000 for fiscal year 2006; and
            (4) $6,000,000,000 for fiscal year 2007.
    (b) Availability.--Amounts made available under this 
section shall remain available until expended.
    (c) Needs Surveys.--Of the amount made available under 
subsection (a) to carry out this title for a fiscal year, the 
Administrator may use not more than $1,000,000 for the fiscal 
year to pay the costs of conducting needs surveys under section 
516(2).

           *       *       *       *       *       *       *


                        TITLE VII_MISCELLANEOUS

SEC. 701. NUTRIENT CONTROL TECHNOLOGY GRANT PROGRAM.

    (a) Definition of Eligible Facility.--In this section, the 
term `eligible facility' means a municipal wastewater treatment 
works that, as of the date of enactment of this title, has a 
permitted design capacity to treat an annual average of 500,000 
gallons or more of wastewater per day.
    (b) Grant Program.--
            (1) Establishment.--Subject to subsections (c) and 
        (d), not later than 1 year after the date of enactment 
        of this title, the Administrator shall establish within 
        the Environmental Protection Agency a program to 
        provide grants to States and municipalities to upgrade 
        the nutrient removal technologies of eligible 
        facilities.
            (2) Priority.--In providing grants under paragraph 
        (1), the Administrator shall give priority to eligible 
        facilities at which nutrient removal technology 
        upgrades would result in the greatest environmental 
        benefits.
            (3) Application.--
                    (A) In general.--A State or municipality 
                that seeks to receive a grant under this 
                section shall submit to the Administrator an 
                application that is in such form, and that 
                includes such information, as the Administrator 
                may require.
                    (B) Provision of assistance.--Subject to 
                subsections (c) and (d), on receipt and 
                approval of an application submitted under 
                subparagraph (A), the Administrator shall 
                provide to the State or municipality that 
                submits the application a grant in an amount 
                that does not exceed the amount requested in 
                the application.
            (4) Use of funds.--A State or municipality that 
        receives a grant under this section shall use the funds 
        from the grant to upgrade the nutrient removal 
        technologies of eligible facilities in the State or 
        municipality to nutrient removal technologies that are 
        designed to reduce total nitrogen in discharged 
        wastewater to an average annual concentration of not 
        more than 4 milligrams per liter or the limit of 
        nutrient removal technologies in a particular 
        geographical area, whichever is less.
            (5) Cost sharing.--The share of the total cost of 
        upgrading any eligible facility as described in 
        paragraph (1) using funds provided under this section 
        shall not exceed 55 percent.
    (c) Available Funds.--The Administrator shall carry out the 
program established under subsection (b)(1) for a fiscal year 
only if the amount of funds made available for capitalization 
grants under title VI for the fiscal year exceeds 
$1,350,000,000.
    (d) Authorization of Appropriations.--
            (1) In general.--There is authorized to be 
        appropriated to carry out this section $100,000,000 for 
        each of fiscal years 2003 through 2007, to remain 
        available until expended.
            (2) Administrative costs.--The Administrator may 
        use not to exceed 4 percent of any amount made 
        available under paragraph (1) to pay administrative 
        costs incurred in carrying out this section.

           *       *       *       *       *       *       *


               TITLE XIV OF THE PUBLIC HEALTH SERVICE ACT

        SAFETY OF PUBLIC WATER SYSTEMS (SAFE DRINKING WATER ACT)

[As Amended Through Public Law 107-136, Jan. 24, 2002]

           *       *       *       *       *       *       *


                              SHORT TITLE

    Sec. 1400. This title may be cited as the ``Safe Drinking 
Water Act''.

           *       *       *       *       *       *       *

    Sec. 1420. (a) State Authority for New Systems.--A State 
shall receive only 80 percent of the allotment that the State 
is otherwise entitled to receive under section 1452 (relating 
to State loan funds) unless the State has obtained the legal 
authority or other means to ensure that all new community water 
systems and new nontransient, noncommunity water systems 
commencing operation after October 1, 1999, demonstrate 
technical, managerial, and financial capacity with respect to 
each national primary drinking water regulation in effect, or 
likely to be in effect, on the date of commencement of 
operations.
    (b) Systems in Significant Noncompliance.--
            (1) List.--Beginning not later than 1 year after 
        the date of enactment of this section, each State shall 
        prepare, periodically update, and submit to the 
        Administrator a list of community water systems and 
        nontransient, noncommunity water systems that have a 
        history of significant noncompliance with this title 
        (as defined in guidelines issued prior to the date of 
        enactment of this section or any revisions of the 
        guidelines that have been made in consultation with the 
        States) and, to the extent practicable, the reasons for 
        noncompliance.
            (2) Report.--Not later than 5 years after the date 
        of enactment of this section and as part of the 
        capacity development strategy of the State, each State 
        shall report to the Administrator on the success of 
        enforcement mechanisms and initial capacity development 
        efforts in assisting the public water systems listed 
        under paragraph (1) to improve technical, managerial, 
        and financial capacity.
            (3) Withholding.--The list and report under this 
        subsection shall be considered part of the capacity 
        development strategy of the State required under 
        subsection (c) of this section for purposes of the 
        withholding requirements of section 1452(a)(1)(G)(i) 
        (relating to State loan funds).
    (c) Capacity Development Strategy.--
            (1) In general.--Beginning 4 years after the date 
        of enactment of this section, a State shall receive 
        only--
                    (A) 90 percent in fiscal year 2001;
                    (B) 85 percent in fiscal year 2002; and
                    (C) 80 percent in each subsequent fiscal 
                year,
        of the allotment that the State is otherwise entitled 
        to receive under section 1452 (relating to State loan 
        funds), unless the State is developing and implementing 
        a strategy to assist public water systems in acquiring 
        and maintaining technical, managerial, and financial 
        capacity.
            (2) Content.--In preparing the capacity development 
        strategy, the State shall consider, solicit public 
        comment on, and include as appropriate--
                    (A) the methods or criteria that the State 
                will use to identify and prioritize the public 
                water systems most in need of improving 
                technical, managerial, and financial capacity;
                    (B) a description of the institutional, 
                regulatory, financial, tax, or legal factors at 
                the Federal, State, or local level that 
                encourage or impair capacity development;
                    (C) a description of how the State will use 
                the authorities and resources of this title or 
                other means to--
                            (i) assist public water systems in 
                        complying with national primary 
                        drinking water regulations;
                            (ii) encourage the development of 
                        partnerships between public water 
                        systems to enhance the technical, 
                        managerial, and financial capacity of 
                        the systems; and
                            (iii) assist public water systems 
                        in the training and certification of 
                        operators;
                    (D) a description of how the State will 
                establish a baseline and measure improvements 
                in capacity with respect to national primary 
                drinking water regulations and State drinking 
                water law; and
                    (E) an identification of the persons that 
                have an interest in and are involved in the 
                development and implementation of the capacity 
                development strategy (including all appropriate 
                agencies of Federal, State, and local 
                governments, private and nonprofit public water 
                systems, and public water system customers).
            (3) Report.--Not later than 2 years after the date 
        on which a State first adopts a capacity development 
        strategy under this subsection, and every 3 years 
        thereafter, the head of the State agency that has 
        primary responsibility to carry out this title in the 
        State shall submit to the Governor a report that shall 
        also be available to the public on the efficacy of the 
        strategy and progress made toward improving the 
        technical, managerial, and financial capacity of public 
        water systems in the State.
            (4) Review.--The decisions of the State under this 
        section regarding any particular public water system 
        are not subject to review by the Administrator and may 
        not serve as the basis for withholding funds under 
        section 1452.
    (d) Federal Assistance.--
            (1) In general.--The Administrator shall support 
        the States in developing capacity development 
        strategies.
            (2) Informational assistance.--
                    (A) In general.--Not later than 180 days 
                after the date of enactment of this section, 
                the Administrator shall--
                            (i) conduct a review of State 
                        capacity development efforts in 
                        existence on the date of enactment of 
                        this section and publish information to 
                        assist States and public water systems 
                        in capacity development efforts; and
                            (ii) initiate a partnership with 
                        States, public water systems, and the 
                        public to develop information for 
                        States on recommended operator 
                        certification requirements.
                    (B) Publication of information.--The 
                Administrator shall publish the information 
                developed through the partnership under 
                subparagraph (A)(ii) not later than 18 months 
                after the date of enactment of this section.
            (3) Promulgation of drinking water regulations.--In 
        promulgating a national primary drinking water 
        regulation, the Administrator shall include an analysis 
        of the likely effect of compliance with the regulation 
        on the technical, financial, and managerial capacity of 
        public water systems.
            (4) Guidance for new systems.--Not later than 2 
        years after the date of enactment of this section, the 
        Administrator shall publish guidance developed in 
        consultation with the States describing legal 
        authorities and other means to ensure that all new 
        community water systems and new nontransient, 
        noncommunity water systems demonstrate technical, 
        managerial, and financial capacity with respect to 
        national primary drinking water regulations.
    (e) Variances and Exemptions.--Based on information 
obtained under subsection (c)(3), the Administrator shall, as 
appropriate, modify regulations concerning variances and 
exemptions for small public water systems to ensure flexibility 
in the use of the variances and exemptions. Nothing in this 
subsection shall be interpreted, construed, or applied to 
affect or alter the requirements of section 1415 or 1416.
    (f) Small Public Water Systems Technology Assistance 
Centers.--
            (1) Grant program.--The Administrator is authorized 
        to make grants to institutions of higher learning to 
        establish and operate small public water system 
        technology assistance centers in the United States.
            (2) Responsibilities of the centers.--The 
        responsibilities of the small public water system 
        technology assistance centers established under this 
        subsection shall include technology verification, pilot 
        and field testing of innovative technologies, andthe 
        conduct of training and technical assistance relating 
        to the information, performance, and technical needs of 
        small public water systems or public water systems that 
        serve Indian Tribes.
            (3) Applications.--Any institution of higher 
        learning interested in receiving a grant under this 
        subsection shall submit to the Administrator an 
        application in such form and containing such 
        information as the Administrator may require by 
        regulation.
            (4) Selection criteria.--The Administrator shall 
        select recipients of grants under this subsection on 
        the basis of the following criteria:
                    (A) The small public water system 
                technology assistance center shall be located 
                in a State that is representative of the needs 
                of the region in which the State is located for 
                addressing the drinking water needs of small 
                and rural communities or Indian Tribes.
                    (B) The grant recipient shall be located in 
                a region that has experienced problems, or may 
                reasonably be foreseen to experience problems, 
                with small and rural public water systems.
                    (C) The grant recipient shall have access 
                to expertise in small public water system 
                technology management.
                    (D) The grant recipient shall have the 
                capability to disseminate the results of small 
                public water system technology and training 
                programs.
                    (E) The projects that the grant recipient 
                proposes to carry out under the grant are 
                necessary and appropriate.
                    (F) The grant recipient has regional 
                support beyond the host institution.
            (5) Consortia of states.--At least 2 of the grants 
        under this subsection shall be made to consortia of 
        States with low population densities.
            [(6) Authorization of appropriations.--There are 
        authorized to be appropriated to make grants under this 
        subsection $2,000,000 for each of the fiscal years 1997 
        through 1999, and $5,000,000 for each of the fiscal 
        years 2000 through 2003.]
            (6) Review and evaluation.--
                    (A) In general.--Not less often than every 
                2 years, the Administrator shall review and 
                evaluate the program carried out under this 
                subsection.
                    (B) Disqualification.--If, in carrying out 
                this subsection, the Administrator determines 
                that a small public water system technology 
                assistance center is not carrying out the 
                duties of the center, the Administrator--
                            (i) shall notify the center of the 
                        determination of the Administrator; and
                            (ii) not later than 180 days after 
                        the date of the notification, may 
                        terminate the provision of funds to the 
                        center.
            (7) Authorization of appropriations.--There is 
        authorized to be appropriated to carry out this 
        subsection $6,000,000 for each of fiscal years 2003 
        through 2007, to be distributed to the centers in 
        accordance with this subsection.
    (g) Environmental Finance Centers.--
            (1) In general.--The Administrator shall provide 
        initial funding for one or more university-based 
        environmental finance centers for activities that 
        provide technical assistance to State and local 
        officials in developing the capacity of public water 
        systems. Any such funds shall be used only for 
        activities that are directly related to this title.
            (2) National capacity development clearinghouse.--
        The Administrator shall establish a national public 
        water system capacity development clearinghouse to 
        receive and disseminate information with respect to 
        developing, improving, and maintaining financial and 
        managerial capacity at public water systems. The 
        Administrator shall ensure that the clearinghouse does 
        not duplicate other federally supported clearinghouse 
        activities.
            (3) Capacity development techniques.--The 
        Administrator may request an environmental finance 
        center funded under paragraph (1) to develop and test 
        managerial, financial, and institutional techniques for 
        capacity development. The techniques may include 
        capacity assessment methodologies, manual and computer 
        based public water system rate models and capital 
        planning models, public water system consolidation 
        procedures, and regionalization models.
            [(4) Authorization of appropriations.--There are 
        authorized to be appropriated to carry out this 
        subsection $1,500,000 for each of the fiscal years 1997 
        through 2003.]
            (4) Authorization of appropriations.--There is 
        authorized to be appropriated to carry out this 
        subsection $2,000,000 for each of fiscal years 2003 
        through 2007.
            (5) Limitation.--No portion of any funds made 
        available under this subsection may be used for 
        lobbying expenses.

           *       *       *       *       *       *       *

    Sec. 1443. (a)(1) From allotments made pursuant to 
paragraph (4), the Administrator may make grants to States to 
carry out public water system supervision programs.
    (2) No grant may be made under paragraph (1) unless an 
application therefor has been submitted to the Administrator in 
such form and manner as he may require. The Administrator may 
not approve an application of a State for its first grant under 
paragraph (1) unless he determines that the State--
            (A) has established or will establish within one 
        year from the date of such grant a public water system 
        supervision program, and
            (B) will, within that one year, assume primary 
        enforcement responsibility for public water systems 
        within the State.
No grant may be made to a State under paragraph (1) for any 
period beginning more than one year after the date of the 
State's first grant unless the State has assumed and maintains 
primary enforcement responsibility for public water systems 
within the State. The prohibitions contained in the preceding 
two sentences shall not apply to such grants when made to 
Indian Tribes.
    (3) A grant under paragraph (1) shall be made to cover not 
more than 75 per centum of the grant recipient's costs (as 
determined under regulations of the Administrator) in carrying 
out, during the one-year period beginning on the date the grant 
is made, a public water system supervision program.
    (4) In each fiscal year the Administrator shall, in 
accordance with regulations, allot the sums appropriated for 
such year under paragraph (5) among the States on the basis of 
population, geographical area, number of public water systems, 
and other relevant factors. No State shall receive less than 1 
per centum of the annual appropriation for grants under 
paragraph (1): Provided, That the Administrator may, by 
regulation, reduce such percentage in accordance with the 
criteria specified in this paragraph: And provided further, 
That such percentage shall not apply to grants allotted to 
Guam, American Samoa, or the Virgin Islands.
    (5) The prohibition contained in the last sentence of 
paragraph (2) may be waived by the Administrator with respect 
to a grant to a State through fiscal year 1979 but such 
prohibition may only be waived if, in the judgment of the 
Administrator--
            (A) the State is making a diligent effort to assume 
        and maintain primary enforcement responsibility for 
        public water systems within the State;
            (B) the State has made significant progress toward 
        assuming and maintaining such primary enforcement 
        responsibility; and
            (C) there is reason to believe the State will 
        assume such primary enforcement responsibility by 
        October 1, 1979.
The amount of any grant awarded for the fiscal years 1978 and 
1979 pursuant to a waiver under this paragraph may not exceed 
75 per centum of the allotment which the State would have 
received for such fiscal year if it had assumed and maintained 
such primary enforcement responsibility. The remaining 25 per 
centum of the amount allotted to such State for such fiscal 
year shall be retained by the Administrator, and the 
Administrator may award such amount to such State at such time 
as the State assumes such responsibility before the beginning 
of fiscal year 1980. At the beginning of each fiscal years 1979 
and 1980 the amounts retained by the Administrator for any 
preceding fiscal year and not awarded by the beginning of 
fiscal year 1979 or 1980 to the States to which such amounts 
were originally allotted may be removed from the original 
allotment and reallotted for fiscal year 1979 or 1980 (as the 
case may be) to States which have assumed primary enforcement 
responsibility by the beginning of such fiscal year.
    (6) The Administrator shall notify the State of the 
approval or disapproval of any application for a grant under 
this section--
            (A) within ninety days after receipt of such 
        application, or
            (B) not later than the first day of the fiscal year 
        for which the grant application is made, whichever is 
        later.
            (7) Authorization.--For the purpose of making 
        grants under paragraph (1), there are authorized to be 
        appropriated $100,000,000 for each of fiscal years 1997 
        through 2003.
            (8) Reservation of funds by the administrator.--If 
        the Administrator assumes the primary enforcement 
        responsibility of a State public water system 
        supervision program, the Administrator may reserve from 
        funds made available pursuant to this subsection an 
        amount equal to the amount that would otherwise have 
        been provided to the State pursuant to this subsection. 
        The Administrator shall use the funds reserved pursuant 
        to this paragraph to ensure the full and effective 
        administration of a public water system supervision 
        program in the State.
            (9) State loan funds.--
                    (A) Reservation of funds.--For any fiscal 
                year for which the amount made available to the 
                Administrator by appropriations to carry out 
                this subsection is less than the amount that 
                the Administrator determines is necessary to 
                supplement funds made available pursuant to 
                paragraph (8) to ensure the full and effective 
                administration of a public water system 
                supervision program in a State, the 
                Administrator may reserve from the funds made 
                available to the State under section 1452 
                (relating to State loan funds) an amount that 
                is equal to the amount of the shortfall. This 
                paragraph shall not apply to any State not 
                exercising primary enforcement responsibility 
                for public water systems as of the date of 
                enactment of the Safe Drinking Water Act 
                Amendments of 1996.
                    (B) Duty of administrator.--If the 
                Administrator reserves funds from the 
                allocation of a State under subparagraph (A), 
                the Administrator shall carry out in the State 
                each of the activities that would be required 
                of the State if the State had primary 
                enforcement authority under section 1413.
    (b)(1) From allotments made pursuant to paragraph (4), the 
Administrator may make grants to States to carry out 
underground water source protection programs.
    (2) No grant may be made under paragraph (1) unless an 
application therefor has been submitted to the Administrator in 
such form and manner as he may require. No grant may be made to 
any State under paragraph (1) unless the State has assumed 
primary enforcement responsibility within two years after the 
date the Administrator promulgates regulations for State 
underground injection control programs under section 1421. The 
prohibition contained in the preceding sentence shall not apply 
to such grants when made to Indian Tribes.
    (3) A grant under paragraph (1) shall be made to cover not 
more than 75 per centum of the grant recipient's costs (as 
determined under regulations of the Administrator) in carrying 
out, during the one-year period beginning on the date the grant 
is made, an underground water source protection program.
    (4) In each fiscal year the Administrator shall, in 
accordance with regulations, allot the sums appropriated for 
such year under paragraph (5) among the States on the basis of 
population, geographical area, and other relevant factors.
    (5) For purposes of making grants under paragraph (1) there 
are authorized to be appropriated $5,000,000 for the fiscal 
year ending June 30, 1976, $7,500,000 for the fiscal year 
ending June 30, 1977, $10,000,000 for each of the fiscal years 
1978 and 1979, $7,795,000 for the fiscal year ending September 
30, 1980, $18,000,000 for the fiscal year ending September 30, 
1981, and $21,000,000 for the fiscal year ending September 30, 
1982. For the purpose of making grants under paragraph (1) 
there are authorized to be appropriated not more than the 
following amounts:

Fiscal year:
                                                                Amount  
    1987................................................    $19,700,000 
    1988................................................     19,700,000 
    1989................................................     20,850,000 
    1990................................................     20,850,000 
    1991................................................     20,850,000 
    1992-2003...........................................     15,000,000.

    (c) For purposes of this section:
            (1) The term ``public water system supervision 
        program'' means a program for the adoption and 
        enforcement of drinking water regulations (with such 
        variances and exemptions from such regulations under 
        conditions and in a manner which is not less stringent 
        than the conditions under, and the manner in, which 
        variances and exemptions may be granted under sections 
        1415 and 1416) which are no less stringent than the 
        national primary drinking water regulations under 
        section 1412, and for keeping records and making 
        reports required by section 1413(a)(3).
            (2) The term ``underground water source protection 
        program'' means a program for the adoption and 
        enforcement of a program which meets the requirements 
        of regulations under section 1421 and for keeping 
        records and making reports required by section 
        1422(b)(1)(A)(ii). Such term includes, where 
        applicable, a program which meets the requirements of 
        section 1425.
    (d) New York City Watershed Protection Program.--
            (1) In general.--The Administrator is authorized to 
        provide financial assistance to the State of New York 
        for demonstration projects implemented as part of the 
        watershed program for the protection and enhancement of 
        the quality of source waters of the New York City water 
        supply system, including projects that demonstrate, 
        assess, or provide for comprehensive monitoring and 
        surveillance and projects necessary to comply with the 
        criteria for avoiding filtration contained in 40 CFR 
        141.71. Demonstration projects which shall be eligible 
        for financial assistance shall be certified to the 
        Administrator by the State of New York as satisfying 
        the purposes of this subsection. In certifying projects 
        to the Administrator, the State of New York shall give 
        priority to monitoring projects that have undergone 
        peer review.
            (2) Report.--Not later than 5 years after the date 
        on which the Administrator first provides assistance 
        pursuant to this paragraph, the Governor of the State 
        of New York shall submit a report to the Administrator 
        on the results of projects assisted.
            (3) Matching requirements.--Federal assistance 
        provided under this subsection shall not exceed 50 
        percent of the total cost of the protection program 
        being carried out for any particular watershed or 
        ground water recharge area.
            (4) Authorization.--There are authorized to be 
        appropriated to the Administrator to carry out this 
        subsection for each of fiscal years [1997 through 2003, 
        $15,000,000] 2003 through 2010, $25,000,000 for the 
        purpose of providing assistance to the State of New 
        York to carry out paragraph (1).

           *       *       *       *       *       *       *

    Sec. 1450. (a)(1) The Administrator is authorized to 
prescribe such regulations as are necessary or appropriate to 
carry out his functions under this title.
    (2) The Administrator may delegate any of his functions 
under this title (other than prescribing regulations) to any 
officer or employee of the Agency.
    (b) The Administrator, with the consent of the head of any 
other agency of the United States, may utilize such officers 
and employees of such agency as he deems necessary to assist 
him in carrying out the purposes of this title.
    (c) Upon the request of a State or interstate agency, the 
Administrator may assign personnel of the Agency to such State 
or interstate agency for the purposes of carrying out the 
provisions of this title.
    (d)(1) The Administrator may make payments of grants under 
this title (after necessary adjustment on account of previously 
made underpayments or overpayments) in advance or by way of 
reimbursement, and in such installments and on such conditions 
as he may determine.
    (2) Financial assistance may be made available in the form 
of grants only to individuals and nonprofit agencies or 
institutions. For purposes of this paragraph, the term 
``nonprofit agency or institution'' means an agency or 
institution no part of the net earnings of which inure, or may 
lawfully inure, to the benefit of any private shareholder or 
individual.
    [(e) The Administrator shall take such action as may be 
necessary to assure compliance with provisions of the Act of 
March 3, 1931 (known as the Davis-Bacon Act; 40 U.S.C. 276a-
276a(5)). The Secretary of Labor]
    (e) Labor Standards.--
            (1) In general.--The Administrator shall take such 
        action as is necessary to ensure that all laborers and 
        mechanics employed by contractors and subcontractors on 
        construction projects financed, in whole or in part, by 
        a grant, loan, loan guarantee, refinancing, or any 
        other form of assistance provided under this title 
        (including assistance provided from the State drinking 
        water revolving fund under section 1452) are paid wages 
        at rates that are not less than the rates prevailing 
        for the same type of work for similar construction in 
        the immediate locality, as determined by the Secretary 
        of Labor in accordance with the Act of March 3, 1931 
        (40 U.S.C. 276a et seq.).
            (2) Authority and functions.--The Secretary of 
        Labor shall have, with respect to the labor standards 
        specified in this subsection, the authority and 
        functions set forth in Reorganization Plan Numbered 14 
        of 1950 (15 F.R. 3176; 64 Stat. 1267) and section 2 of 
        the Act of June 13, 1934 (40 U.S.C. 276c).

           *       *       *       *       *       *       *


                       STATE REVOLVING LOAN FUNDS

    Sec. 1452. (a) General Authority.--
            (1) Grants to states to establish state loan 
        funds.--
                    (A) In general.--The Administrator shall 
                offer to enter into agreements with eligible 
                States to make capitalization grants, including 
                letters of credit, to the States under this 
                subsection to further the health protection 
                objectives of this title, promote the efficient 
                use of fund resources, and for other purposes 
                as are specified in this title.
                    (B) Establishment of fund.--To be eligible 
                to receive a capitalization grant under this 
                section, a State shall establish a drinking 
                water treatment revolving loan fund (referred 
                to in this section as a ``State loan fund'') 
                and comply with the other requirements of this 
                section. Each grant to a State under this 
                section shall be deposited in the State loan 
                fund established by the State, except as 
                otherwise provided in this section and in other 
                provisions of this title. No funds authorized 
                by other provisions of this title to be used 
                for other purposes specified in this title 
                shall be deposited in any State loan fund.
                    (C) Extended period.--The grant to a State 
                shall be available to the State for obligation 
                during the fiscal year for which the funds are 
                authorized and during the following fiscal 
                year, except that grants made available from 
                funds provided prior to fiscal year 1997 shall 
                be available for obligation during each of the 
                fiscal years 1997 and 1998.
                    (D) Allotment formula.--Except as otherwise 
                provided in this section, funds made available 
                to carry out this section shall be allotted to 
                States that have entered into an agreement 
                pursuant to this section (other than the 
                District of Columbia) in accordance with--
                            (i) for each of fiscal years 1995 
                        through 1997, a formula that is the 
                        same as the formula used to distribute 
                        public water system supervision grant 
                        funds under section 1443 in fiscal year 
                        1995, except that the minimum 
                        proportionate share established in the 
                        formula shall be 1 percent of available 
                        funds and the formula shall be adjusted 
                        to include a minimum proportionate 
                        share for the State of Wyoming and the 
                        District of Columbia; and
                            (ii) for fiscal year 1998 and each 
                        subsequent fiscal year, a formula that 
                        allocates to each State the 
                        proportional share of the State needs 
                        identified in the most recent survey 
                        conducted pursuant to subsection (h), 
                        except that the minimum proportionate 
                        share provided to each State shall be 
                        the same as the minimum proportionate 
                        share provided under clause (i).
                    (E) Reallotment.--The grants not obligated 
                by the last day of the period for which the 
                grants are available shall be reallotted 
                according to the appropriate criteria set forth 
                in subparagraph (D), except that the 
                Administrator may reserve and allocate 10 
                percent of the remaining amount for financial 
                assistance to Indian Tribes in addition to the 
                amount allotted under subsection (i) and none 
                of the funds reallotted by the Administrator 
                shall be reallotted to any State that has not 
                obligated all sums allotted to the State 
                pursuant to this section during the period in 
                which the sums were available for obligation.
                    (F) Nonprimacy states.--The State allotment 
                for a State not exercising primary enforcement 
                responsibility for public water systems shall 
                not be deposited in any such fund but shall be 
                allotted by the Administrator under this 
                subparagraph. Pursuant to section 1443(a)(9)(A) 
                such sums allotted under this subparagraph 
                shall be reserved as needed by the 
                Administrator to exercise primary enforcement 
                responsibility under this title in such State 
                and the remainder shall be reallotted to States 
                exercising primary enforcement responsibility 
                for public water systems for deposit in such 
                funds. Whenever the Administrator makes a final 
                determination pursuant to section 1413(b) that 
                the requirements of section 1413(a) are no 
                longer being met by a State, additional grants 
                for such State under this title shall be 
                immediately terminated by the Administrator. 
                This subparagraph shall not apply to any State 
                not exercising primary enforcement 
                responsibility for public water systems as of 
                the date of enactment of the Safe Drinking 
                Water Act Amendments of 1996.
                    (G) Other programs.--
                            (i) New system capacity.--Beginning 
                        in fiscal year 1999, the Administrator 
                        shall withhold 20 percent of each 
                        capitalization grant made pursuant to 
                        this section to a State unless the 
                        State has met the requirements of 
                        section 1420(a) (relating to capacity 
                        development) and shall withhold 10 
                        percent for fiscal year 2001, 15 
                        percent for fiscal year 2002, and 20 
                        percent for fiscal year 2003 if the 
                        State has not complied with the 
                        provisions of section 1420(c) (relating 
                        to capacity development strategies). 
                        Not more than a total of 20 percent of 
                        the capitalization grants made to a 
                        State in any fiscal year may be 
                        withheld under the preceding provisions 
                        of this clause. All funds withheld by 
                        the Administrator pursuant to this 
                        clause shall be reallotted by the 
                        Administrator on the basis of the same 
                        ratio as is applicable to funds 
                        allotted under subparagraph (D). None 
                        of the funds reallotted by the 
                        Administrator pursuant to this 
                        paragraph shall be allotted to a State 
                        unless the State has met the 
                        requirements of section 1420 (relating 
                        to capacity development).
                            (ii) Operator certification.--The 
                        Administrator shall withhold 20 percent 
                        of each capitalization grant made 
                        pursuant to this section unless the 
                        State has met the requirements of 1419 
                        \1\ (relating to operator 
                        certification). All funds withheld by 
                        the Administrator pursuant to this 
                        clause shall be reallotted by the 
                        Administrator on the basis of the same 
                        ratio as applicable to funds allotted 
                        under subparagraph (D). None of the 
                        funds reallotted by the Administrator 
                        pursuant to this paragraph shall be 
                        allotted to a State unless the State 
                        has met the requirements of section 
                        1419 (relating to operator 
                        certification).
---------------------------------------------------------------------------
    \1\ So in law. The reference to ``1419'' probably should be to 
``section 1419''. See the amendment made by section 130 of Public Law 
104-182.
---------------------------------------------------------------------------
            (2) Use of funds.--Except as otherwise authorized 
        by this title, amounts deposited in a State loan fund, 
        including loan repayments and interest earned on such 
        amounts, shall be used only for providing loans or loan 
        guarantees, or as a source of reserve and security for 
        leveraged loans, the proceeds of which are deposited in 
        a State loan fund established under paragraph (1), or 
        other financial assistance authorized under this 
        section to community water systems and nonprofit 
        noncommunity water systems, other than systems owned by 
        Federal agencies. Financial assistance under this 
        section may be used by a public water system only for 
        expenditures (not including monitoring, operation, and 
        maintenance expenditures) of a type or category which 
        the Administrator has determined, through guidance, 
        will facilitate compliance with national primary 
        drinking water regulations applicable to the system 
        under section 1412 or otherwise significantly further 
        the health protection objectives of this title, 
        including planning, design, and associated 
        preconstruction expenditures and projects for 
        consolidation among community water systems. The funds 
        may also be used to provide loans to a system referred 
        to in section 1401(4)(B) for the purpose of providing 
        the treatment described in section 1401(4)(B)(i)(III) 
        or carrying out any project or activity to increase the 
        security of a public water system. The funds shall not 
        be used for the acquisition of real property or 
        interests therein, unless the acquisition is integral 
        to a project authorized by this paragraph and the 
        purchase is from a willing seller. Of the amount 
        credited to any State loan fund established under this 
        section in any fiscal year, 15 percent shall be 
        available solely for providing loan assistance to 
        public water systems which regularly serve fewer than 
        10,000 persons to the extent such funds can be 
        obligated for eligible projects of public water 
        systems.
            (3) Limitation.--
                    (A) In general.--Except as provided in 
                subparagraph (B), no assistance under this 
                section shall be provided to a public water 
                system that--
                            (i) does not have the technical, 
                        managerial, and financial capability to 
                        ensure compliance with the requirements 
                        of this title; or
                            (ii) is in significant 
                        noncompliance with any requirement of a 
                        national primary drinking water 
                        regulation or variance.
                    (B) Restructuring.--A public water system 
                described in subparagraph (A) may receive 
                assistance under this section if--
                            (i) the use of the assistance will 
                        ensure compliance; and
                            (ii) if subparagraph (A)(i) applies 
                        to the system, the owner or operator of 
                        the system agrees to undertake feasible 
                        and appropriate changes in operations 
                        (including ownership, management, 
                        accounting, rates, maintenance, 
                        consolidation, alternative water 
                        supply, or other procedures and the 
                        formation of regional partnerships) if 
                        the State determines that the measures 
                        are necessary to ensure that the system 
                        has the technical, managerial, and 
                        financial capability to comply with the 
                        requirements of this title over the 
                        long term.
                    (C) Review.--Prior to providing assistance 
                under this section to a public water system 
                that is in significant noncompliance with any 
                requirement of a national primary drinking 
                water regulation or variance, the State shall 
                conduct a review to determine whether 
                subparagraph (A)(i) applies to the system.
    (b) Intended Use Plans.--
            (1) In general.--After providing for public review 
        and comment (including significant public outreach), 
        each State that has entered into a capitalization 
        agreement pursuant to this section shall annually 
        prepare a plan that identifies the intended uses of the 
        amounts available to the State loan fund of the State.
            (2) Contents.--An intended use plan shall include--
                    (A) a list of the projects to be assisted 
                in the first fiscal year that begins after the 
                date of the plan, including a description of 
                the project, the expected terms of financial 
                assistance, and the size of the community 
                served;
                    (B) the criteria and methods established 
                for the distribution of funds; and
                    (C) a description of the financial status 
                of the State loan fund and the short-term and 
                long-term goals of the State loan fund.
            (3) Use of funds.--
                    (A) In general.--An intended use plan shall 
                provide, to the maximum extent practicable, 
                that priority for the use of funds be given to 
                projects that--
                            (i) address the most serious risk 
                        to human health;
                            (ii) are necessary to ensure 
                        compliance with the requirements of 
                        this title (including requirements for 
                        filtration); and
                            (iii) assist systems most in need 
                        on a per household basis according to 
                        State affordability criteria.
                    (B) List of projects.--Each State shall, 
                after notice and opportunity for public comment 
                (including significant public outreach), 
                publish and periodically update a list of 
                projects in the State that are eligible for 
                assistance under this section, including the 
                priority assigned to each project and, to the 
                extent known, the expected funding schedule for 
                each project.
    (c) Fund Management.--Each State loan fund under this 
section shall be established, maintained, and credited with 
repayments and interest. The fund corpus shall be available in 
perpetuity for providing financial assistance under this 
section. To the extent amounts in the fund are not required for 
current obligation or expenditure, such amounts shall be 
invested in interest bearing obligations.
    (d) Assistance for Disadvantaged Communities.--
            [(3)] (1) [Definition of disadvantaged community.--
        In this subsection, the term]
            (1) Definitions.--In this subsection:
                    (A) Disadvantaged community.--The term 
                ``disadvantaged community'' means the service 
                area of a public water system that meets 
                affordability criteria established after public 
                review and comment by the State in which the 
                public water system is located. The 
                Administrator may publish information to assist 
                States in establishing affordability criteria.
                    (B) Disadvantaged user.--The term 
                `disadvantaged user' means a person that meets 
                affordability criteria established, after 
                public review and comment, by the State in 
                which the person resides.
            [(1)] (2) Loan subsidy.--[Notwithstanding any other 
        provision]
                    (A) In general.--Notwithstanding any other 
                provision of this section, in any case in which 
                the State makes a loan pursuant to subsection 
                (a)(2) to a disadvantaged community or to a 
                community that the State expects to become a 
                disadvantaged community as the result of a 
                proposed project, the State may provide 
                additional subsidization (including forgiveness 
                of principal).
                    (B) Subsidization for disadvantaged 
                users.--
                            (i) In general.--Subject to clause 
                        (ii), a State may provide additional 
                        subsidization under subparagraph (A) 
                        for a fiscal year for a community that 
                        does not meet the definition of a 
                        disadvantaged community if the 
                        recipient of the assistance 
                        demonstrates and documents to the State 
                        that the recipient, in using the 
                        assistance, directed the additional 
                        subsidization, to the maximum extent 
                        practicable, through the user charge 
                        rate system or a similar program to 
                        disadvantaged users within the 
                        residential user class of the 
                        community.
                            (ii) Maximum amount.--Assistance 
                        provided by a State under clause (i) 
                        shall not exceed 15 percent of the 
                        amount of the capitalization grant 
                        received by the State for the fiscal 
                        year under this section.
                            (iii) Information.--The 
                        Administrator may provide information 
                        to assist States in identifying 
                        disadvantaged users described in clause 
                        (i).
                            (iv) No duplicate assistance.--A 
                        disadvantaged user within a community 
                        that receives assistance as a 
                        disadvantaged community under this 
                        subsection shall not be eligible for 
                        assistance under this paragraph.
            [(2)] (3) Total amount of subsidies.--For each 
        fiscal year, the total amount of loan subsidies made by 
        a State pursuant to [paragraph (1)] paragraph (2) may 
        not exceed 30 percent of the amount of the 
        capitalization grant received by the State for the 
        year.
    (e) State Contribution.--Each agreement under subsection 
(a) shall require that the State deposit in the State loan fund 
from State moneys an amount equal to at least 20 percent of the 
total amount of the grant to be made to the State on or before 
the date on which the grant payment is made to the State, 
except that a State shall not be required to deposit such 
amount into the fund prior to the date on which each grant 
payment is made for fiscal years 1994, 1995, 1996, and 1997 if 
the State deposits the State contribution amount into the State 
loan fund prior to September 30, 1999.
    [(f) Types of Assistance.--Except as otherwise limited by 
State law, the amounts deposited into a State loan fund under 
this section may be used only--
            [(1) to make loans, on the condition that--
                    [(A) the interest rate for each loan is 
                less than or equal to the market interest rate, 
                including an interest free loan;
                    [(B) principal and interest payments on 
                each loan will commence not later than 1 year 
                after completion of the project for which the 
                loan was made, and each loan will be fully 
                amortized not later than 20 years after the 
                completion of the project, except that in the 
                case of a disadvantaged community (as defined 
                in subsection (d)(3)), a State may provide an 
                extended term for a loan, if the extended 
                term--
                            [(i) terminates not later than the 
                        date that is 30 years after the date of 
                        project completion; and
                            [(ii) does not exceed the expected 
                        design life of the project;
                    [(C) the recipient of each loan will 
                establish a dedicated source of revenue (or, in 
                the case of a privately owned system, 
                demonstrate that there is adequate security) 
                for the repayment of the loan; and
                    [(D) the State loan fund will be credited 
                with all payments of principal and interest on 
                each loan;
            [(2) to buy or refinance the debt obligation of a 
        municipality or an intermunicipal or interstate agency 
        within the State at an interest rate that is less than 
        or equal to the market interest rate in any case in 
        which a debt obligation is incurred after July 1, 1993;
            [(3) to guarantee, or purchase insurance for, a 
        local obligation (all of the proceeds of which finance 
        a project eligible for assistance under this section) 
        if the guarantee or purchase would improve credit 
        market access or reduce the interest rate applicable to 
        the obligation;
            [(4) as a source of revenue or security for the 
        payment of principal and interest on revenue or general 
        obligation bonds issued by the State if the proceeds of 
        the sale of the bonds will be deposited into the State 
        loan fund; and
            [(5) to earn interest on the amounts deposited into 
        the State loan fund.]
    (f) Types of Assistance.--
            (1) In general.--Except as otherwise limited by 
        State law, the amounts deposited into a State loan fund 
        under this section may be used only--
                    (A) to make loans, on the condition that--
                            (i) the interest rate for each loan 
                        is less than or equal to the market 
                        interest rate (including an interest-
                        free loan);
                            (ii)(I) principal and interest 
                        payments on each loan will commence not 
                        later than 1 year after completion of 
                        the project for which the loan was 
                        made, and each loan will be fully 
                        amortized not later than 30 years after 
                        the completion of the project, except 
                        that in the case of a disadvantaged 
                        community (as defined in subsection 
                        (d)(1)), a State may provide an 
                        extended term of not more than 40 years 
                        for a loan; and
                            (II) the term of any loan described 
                        in subclause (I) will not exceed the 
                        expected design life of the project;
                            (iii) the recipient of each loan 
                        will establish a dedicated source of 
                        revenue (or, in the case of a privately 
                        owned system, demonstrate that there is 
                        adequate security) for the repayment of 
                        the loan;
                            (iv) the State loan fund will be 
                        credited with all payments of principal 
                        and interest on each loan;
                            (v) the recipient of the loan funds 
                        demonstrates and documents to the State 
                        that the recipient has considered, 
                        during the planning and engineering 
                        phase of each project for which the 
                        loan funds are received--
                                    (I) consolidating 
                                management functions or 
                                ownership with another 
                                facility;
                                    (II) forming cooperative 
                                partnerships; and
                                    (III) using methodologies 
                                or technologies that may be 
                                more environmentally sensitive;
                            (vi) if the recipient of the loan 
                        funds receives, in the aggregate, more 
                        than $500,000 under this section for 
                        any fiscal year, the recipient 
                        demonstrates and documents to the State 
                        that the recipient has in effect a plan 
                        to achieve, within a reasonable period 
                        of time, a rate structure that, to the 
                        maximum extent practicable--
                                    (I) reflects the actual 
                                cost of service provided by the 
                                recipient; and
                                    (II) addresses capital 
                                replacement funds; and
                            (vii) the recipient of each loan 
                        that receives, in the aggregate, more 
                        than $500,000 under this section for 
                        any fiscal year, demonstrates and 
                        documents to the State that the 
                        recipient has in effect, or will have 
                        in effect on completion of the project, 
                        an asset management plan (for which the 
                        Administrator may publish information 
                        to assist States in determining 
                        required content) that--
                                    (I) conforms to generally 
                                accepted industry practices; 
                                and
                                    (II) includes--
                                            (aa) an inventory 
                                        of existing assets 
                                        (including an estimate 
                                        of the useful life of 
                                        the assets); and
                                            (bb) an optimal 
                                        schedule of operations, 
                                        maintenance, and 
                                        capital investment 
                                        required to meet and 
                                        sustain performance 
                                        objectives;
                    (B) to buy or refinance the debt obligation 
                of a municipality or an intermunicipal or 
                interstate agency within the State at an 
                interest rate that is less than or equal to the 
                market interest rate in any case in which a 
                debt obligation is incurred after July 1, 1993;
                    (C) to guarantee, or purchase insurance 
                for, a local obligation (all of the proceeds of 
                which finance a project eligible for assistance 
                under this section) if the guarantee or 
                purchase would improve credit market access or 
                reduce the interest rate applicable to the 
                obligation;
                    (D) as a source of revenue or security for 
                the payment of principal and interest on 
                revenue or general obligation bonds issued by 
                the State if the proceeds of the sale of the 
                bonds will be deposited into the State loan 
                fund; and
                    (E) to earn interest on the amounts 
                deposited into the State loan fund.
            (2) Exemption.--Clauses (v), (vi), and (vii) of 
        paragraph (1)(A) shall not apply to assistance provided 
        under this title that is to be used solely for--
                    (A) planning;
                    (B) design; or
                    (C) security measures that do not result in 
                significant capital expenditures (as defined by 
                a State in accordance with guidance provided by 
                the Administrator).
    (g) Administration of State Loan Funds.--
            (1) Combined financial administration.--
        Notwithstanding subsection (c), a State may (as a 
        convenience and to avoid unnecessary administrative 
        costs) combine, in accordance with State law, the 
        financial administration of a State loan fund 
        established under this section with the financial 
        administration of any other revolving fund established 
        by the State if otherwise not prohibited by the law 
        under which the State loan fund was established and if 
        the Administrator determines that--
                    (A) the grants under this section, together 
                with loan repayments and interest, will be 
                separately accounted for and used solely for 
                the purposes specified in subsection (a); and
                    (B) the authority to establish assistance 
                priorities and carry out oversight and related 
                activities (other than financial 
                administration) with respect to assistance 
                remains with the State agency having primary 
                responsibility for administration of the State 
                program under section 1413, after consultation 
                with other appropriate State agencies (as 
                determined by the State): Provided, That in 
                nonprimacy States eligible to receive 
                assistance under this section, the Governor 
                shall determine which State agency will have 
                authority to establish priorities for financial 
                assistance from the State loan fund.
            (2) Cost of administering fund.--Each State may 
        annually use up to [4] 6 percent of the funds allotted 
        to the State under this section to cover the reasonable 
        costs of administration of the programs under this 
        section, including the recovery of reasonable costs 
        expended to establish a State loan fund which are 
        incurred after the date of enactment of this section, 
        and to provide technical assistance to public water 
        systems within the State. For fiscal year 1995 and each 
        fiscal year thereafter, each State may use up to an 
        additional 10 percent of the funds allotted to the 
        State under this section--
                    (A) for public water system supervision 
                programs under section 1443(a);
                    (B) to administer or provide technical 
                assistance through source water protection 
                programs;
                    (C) to develop and implement a capacity 
                development strategy under section 1420(c); and
                    (D) for an operator certification program 
                for purposes of meeting the requirements of 
                section 1419,
        if the State matches the expenditures with at least an 
        equal amount of State funds. At least half of the match 
        must be additional to the amount expended by the State 
        for public water supervision in fiscal year 1993. An 
        additional 2 percent of the funds annually allotted to 
        each State under this section may be used by the State 
        to provide technical assistance to public water systems 
        serving 10,000 or fewer persons in the State. Funds 
        utilized under subparagraph (B) shall not be used for 
        enforcement actions.
            (3) Guidance and regulations.--The Administrator 
        shall publish guidance and promulgate regulations as 
        may be necessary to carry out the provisions of this 
        section, including--
                    (A) provisions to ensure that each State 
                commits and expends funds allotted to the State 
                under this section as efficiently as possible 
                in accordance with this title and applicable 
                State laws;
                    (B) guidance to prevent waste, fraud, and 
                abuse; and
                    (C) guidance to avoid the use of funds made 
                available under this section to finance the 
                expansion of any public water system in 
                anticipation of future population growth.
        The guidance and regulations shall also ensure that the 
        States, and public water systems receiving assistance 
        under this section, use accounting, audit, and fiscal 
        procedures that conform to generally accepted 
        accounting standards.
            (4) State report.--Each State administering a loan 
        fund and assistance program under this subsection shall 
        publish and submit to the Administrator a report every 
        2 years on its activities under this section, including 
        the findings of the most recent audit of the fund and 
        the entire State allotment. The Administrator shall 
        periodically audit all State loan funds established by, 
        and all other amounts allotted to, the States pursuant 
        to this section in accordance with procedures 
        established by the Comptroller General.
            (5) Consultation and coordination with state 
        agencies.--As a condition of receiving assistance under 
        this section, a recipient shall demonstrate and 
        document to the State that the recipient, in using the 
        assistance, will consult and coordinate with, as 
        appropriate, agencies with authority to develop--
                    (A) local land use plans;
                    (B) regional transportation improvement and 
                long-range transportation plans; and
                    (C) State, regional, and municipal 
                watershed plans.
            (6) Transfer of funds.--
                    (A) In general.--A Governor of the State 
                may--
                            (i)(I) reserve up to 33 percent of 
                        a capitalization grant made under this 
                        section for a fiscal year;
                            (II) add the funds reserved to any 
                        funds provided to the State under 
                        section 601 of the Federal Water 
                        Pollution Control Act (33 U.S.C. 1381); 
                        and
                            (III) use the funds to carry out 
                        that section; and
                            (ii)(I) reserve in any fiscal year 
                        an amount up to the amount that may be 
                        reserved under clause (i) for that 
                        fiscal year from capitalization grants 
                        made under section 601 of that Act (33 
                        U.S.C. 1381);
                            (II) add the reserved funds to any 
                        funds provided to the State under this 
                        section; and
                            (III) use the funds to carry out 
                        this section.
                    (B) State match.--Funds reserved under this 
                paragraph shall not be considered to be a State 
                match of a capitalization grant required under 
                this section or section 602(b) of the Federal 
                Water Pollution Control Act (33 U.S.C. 
                1382(b)).
    (h) Needs Survey.--[The Administrator]
            (1) In general.--The Administrator shall conduct an 
        assessment of water system capital improvement needs of 
        all eligible public water systems in the United States 
        and submit a report to the Congress containing the 
        results of the assessment within 180 days after the 
        date of enactment of the Safe Drinking Water Act 
        Amendments of 1996 and every 4 years thereafter.
            (2) Private utilities.--If a State elects to 
        include the needs of private utilities in the needs 
        survey under paragraph (1), the private utilities shall 
        be eligible to receive funds under this title.
    (i) Indian Tribes.--
            (1) In general.--1\1/2\ percent of the amounts 
        appropriated annually to carry out this section may be 
        used by the Administrator to make grants to Indian 
        Tribes and Alaska Native villages that have not 
        otherwise received either grants from the Administrator 
        under this section or assistance from State loan funds 
        established under this section. The grants may only be 
        used for expenditures by tribes and villages for public 
        water system expenditures referred to in subsection 
        (a)(2).
            (2) Use of funds.--Funds reserved pursuant to 
        paragraph (1) shall be used to address the most 
        significant threats to public health associated with 
        public water systems that serve Indian Tribes, as 
        determined by the Administrator in consultation with 
        the Director of the Indian Health Service and Indian 
        Tribes.
            (3) Alaska native villages.--In the case of a grant 
        for a project under this subsection in an Alaska Native 
        village, the Administrator is also authorized to make 
        grants to the State of Alaska for the benefit of Native 
        villages. An amount not to exceed 4 percent of the 
        grant amount may be used by the State of Alaska for 
        project management.
            (4) Needs assessment.--The Administrator, in 
        consultation with the Director of the Indian Health 
        Service and Indian Tribes, shall, in accordance with a 
        schedule that is consistent with the needs surveys 
        conducted pursuant to subsection (h), prepare surveys 
        and assess the needs of drinking water treatment 
        facilities to serve Indian Tribes, including an 
        evaluation of the public water systems that pose the 
        most significant threats to public health.
    (j) Other Areas.--Of the funds annually available under 
this section for grants to States, the Administrator shall make 
allotments in accordance with section 1443(a)(4) for the Virgin 
Islands, the Commonwealth of the Northern Mariana Islands, 
American Samoa, and Guam. The grants allotted as provided in 
this subsection may be provided by the Administrator to the 
governments of such areas, to public water systems in such 
areas, or to both, to be used for the public water system 
expenditures referred to in subsection (a)(2). The grants, and 
grants for the District of Columbia, shall not be deposited in 
State loan funds. The total allotment of grants under this 
section for all areas described in this subsection in any 
fiscal year shall not exceed 0.33 percent of the aggregate 
amount made available to carry out this section in that fiscal 
year.
    (k) Other Authorized Activities.--
            (1) In general.--Notwithstanding subsection (a)(2), 
        a State may take each of the following actions:
                    (A) Provide assistance, only in the form of 
                a loan, to one or more of the following:
                            (i) Any public water system 
                        described in subsection (a)(2) to 
                        acquire land or a conservation easement 
                        from a willing seller or grantor, if 
                        the purpose of the acquisition is to 
                        protect the source water of the system 
                        from contamination and to ensure 
                        compliance with national primary 
                        drinking water regulations.
                            (ii) Any community water system to 
                        implement local, voluntary source water 
                        protection measures to protect source 
                        water in areas delineated pursuant to 
                        section 1453, in order to facilitate 
                        compliance with national primary 
                        drinking water regulations applicable 
                        to the system under section 1412 or 
                        otherwise significantly further the 
                        health protection objectives of this 
                        title. Funds authorized under this 
                        clause may be used to fund only 
                        voluntary, incentive-based mechanisms.
                            (iii) Any community water system to 
                        provide funding in accordance with 
                        section 1454(a)(1)(B)(i).
                    (B) Provide assistance, including technical 
                and financial assistance, to any public water 
                system as part of a capacity development 
                strategy developed and implemented in 
                accordance with section 1420(c).
                    (C) Make expenditures from the 
                capitalization grant of the State for fiscal 
                years 1996 and 1997 to delineate and assess 
                source water protection areas in accordance 
                with section 1453, except that funds set aside 
                for such expenditure shall be obligated within 
                4 fiscal years.
                    [(D) Make expenditures from the fund for 
                the establishment and implementation of 
                wellhead protection programs under section 
                1428.]
                    (D) Subject to paragraph (2)(E), make 
                expenditures for the development and 
                implementation of source water protection 
                programs (including wellhead protection 
                programs under section 1428).
            (2) Limitation.--For each fiscal year, the total 
        amount of assistance provided and expenditures made by 
        a State under this subsection may not exceed 15 percent 
        of the amount of the capitalization grant received by 
        the State for that year and may not exceed 10 percent 
        of that amount for any one of the following activities:
                    (A) To acquire land or conservation 
                easements pursuant to paragraph (1)(A)(i).
                    (B) To provide funding to implement 
                voluntary, incentive-based source water quality 
                protection measures pursuant to clauses (ii) 
                and (iii) of paragraph (1)(A).
                    (C) To provide assistance through a 
                capacity development strategy pursuant to 
                paragraph (1)(B).
                    (D) To make expenditures to delineate or 
                assess source water protection areas pursuant 
                to paragraph (1)(C).
                    [(E) To make expenditures to establish and 
                implement wellhead protection programs pursuant 
                to paragraph (1)(D).]
                    (E) To make expenditures to develop and 
                implement source water protection programs 
                (including wellhead protection programs under 
                section 1428) under paragraph (1)(D).
            (3) Statutory construction.--Nothing in this 
        section creates or conveys any new authority to a 
        State, political subdivision of a State, or community 
        water system for any new regulatory measure, or limits 
        any authority of a State, political subdivision of a 
        State or community water system.
    (l) Savings.--The failure or inability of any public water 
system to receive funds under this section or any other loan or 
grant program, or any delay in obtaining the funds, shall not 
alter the obligation of the system to comply in a timely manner 
with all applicable drinking water standards and requirements 
of this title.
    [(m) Authorization of Appropriations.--There are authorized 
to be appropriated to carry out the purposes of this section 
$599,000,000 for the fiscal year 1994 and $1,000,000,000 for 
each of the fiscal years 1995 through 2003. To the extent 
amounts authorized to be appropriated under this subsection in 
any fiscal year are not appropriated in that fiscal year, such 
amounts are authorized to be appropriated in a subsequent 
fiscal year (prior to the fiscal year 2004). Such sums shall 
remain available until expended.]
    (m) Authorization of Appropriations.--
            (1) In general.--There are authorized to be 
        appropriated to carry out this section--
                    (A) $1,500,000,000 for fiscal year 2003;
                    (B) $2,000,000,000 for each of fiscal years 
                2004 and 2005;
                    (C) $3,500,000,000 for fiscal year 2006; 
                and
                    (D) $6,000,000,000 for fiscal year 2007.
            (2) Availability.--Amounts made available under 
        this subsection shall remain available until expended.
            (3) Needs surveys.--Of the amount made available 
        under paragraph (1) to carry out this section for a 
        fiscal year, the Administrator may use not more than 
        $1,000,000 for the fiscal year to pay the costs of 
        conducting needs surveys under subsections (h) and (i).
    (n) Health Effects Studies.--From funds appropriated 
pursuant to this section for each fiscal year, the 
Administrator shall reserve $10,000,000 for health effects 
studies on drinking water contaminants authorized by the Safe 
Drinking Water Act Amendments of 1996. In allocating funds made 
available under this subsection, the Administrator shall give 
priority to studies concerning the health effects of 
cryptosporidium (as authorized by section 1458(c)), 
disinfection byproducts (as authorized by section 1458(c)), and 
arsenic (as authorized by section 1412(b)(12)(A)), and the 
implementation of a plan for studies of subpopulations at 
greater risk of adverse effects (as authorized by section 
1458(a)).
    (o) Monitoring for Unregulated Contaminants.--From funds 
appropriated pursuant to this section for each fiscal year 
beginning with fiscal year 1998, the Administrator shall 
reserve $2,000,000 to pay the costs of monitoring for 
unregulated contaminants under section 1445(a)(2)(C).
    (p) Demonstration Project for State of Virginia.--
Notwithstanding the other provisions of this section limiting 
the use of funds deposited in a State loan fund from any State 
allotment, the State of Virginia may, as a single demonstration 
and with the approval of the Virginia General Assembly and the 
Administrator, conduct a program to demonstrate alternative 
approaches to intergovernmental coordination to assist in the 
financing of new drinking water facilities in the following 
rural communities in southwestern Virginia where none exists on 
the date of enactment of the Safe Drinking Water Act Amendments 
of 1996 and where such communities are experiencing economic 
hardship: Lee County, Wise County, Scott County, Dickenson 
County, Russell County, Buchanan County, Tazewell County, and 
the city of Norton, Virginia. The funds allotted to that State 
and deposited in the State loan fund may be loaned to a 
regional endowment fund for the purpose set forth in this 
subsection under a plan to be approved by the Administrator. 
The plan may include an advisory group that includes 
representatives of such counties.
    (q) Small System Technical Assistance.--The Administrator 
may reserve up to 2 percent of the total funds appropriated 
pursuant to subsection (m) for each of the fiscal years 1997 
through 2003 to carry out the provisions of section 1442(e) 
(relating to technical assistance for small systems), except 
that the total amount of funds made available for such purpose 
in any fiscal year through appropriations (as authorized by 
section 1442(e)) and reservations made pursuant to this 
subsection shall not exceed the amount authorized by section 
1442(e).
    (r) Evaluation.--The Administrator shall conduct an 
evaluation of the effectiveness of the State loan funds through 
fiscal year 2001. The evaluation shall be submitted to the 
Congress at the same time as the President submits to the 
Congress, pursuant to section 1108 of title 31, United States 
Code, an appropriations request for fiscal year 2003 relating 
to the budget of the Environmental Protection Agency.

           *       *       *       *       *       *       *


              PART G--SMALL PUBLIC WATER SYSTEM ASSISTANCE

SEC. 1471. DEFINITIONS.

    In this part:
            (1) Eligible activity.--
                    (A) In general.--The term `eligible 
                activity' means an activity that is carried out 
                by an eligible entity for a purpose consistent 
                with section 1473(c)(1).
                    (B) Exclusion.--The term `eligible 
                activity' does not include any activity to 
                increase the population served by a public 
                water system, except to the extent that the 
                Administrator under section 1473(b)(1) 
                determines an activity to be necessary to--
                            (i) achieve compliance with a 
                        national primary drinking water 
                        regulation; and
                            (ii) provide a water supply to a 
                        population that, as of the date of 
                        enactment of this part, is not served 
                        by a safe public water system.
            (2) Eligible entity.--The term `eligible entity' 
        means--
                    (A) a small public water system that--
                            (i) is located in--
                                    (I) a State; or
                                    (II) an area governed by an 
                                Indian Tribe;
                            (ii) if located in a State, serves 
                        a community that, under affordability 
                        criteria established by the State under 
                        section 1452(d), is determined by the 
                        State to be--
                                    (I) a disadvantaged 
                                community; or
                                    (II) a community that would 
                                otherwise become a 
                                disadvantaged community as a 
                                result of carrying out an 
                                eligible activity, as 
                                determined by the State; or
                            (iii) if located in an area 
                        governed by an Indian Tribe, serves a 
                        community that is determined by the 
                        Administrator, under criteria published 
                        by the Administrator under section 
                        1452(d) and in consultation with the 
                        Secretary, to be--
                                    (I) a disadvantaged 
                                community; or
                                    (II) a community that would 
                                otherwise become a 
                                disadvantaged community as a 
                                result of carrying out an 
                                eligible activity, as 
                                determined by the State;
                    (B) a public water system that--
                            (i) would incur a significant 
                        increase of $3,000,000 or more in costs 
                        in complying with national primary 
                        drinking water regulations promulgated 
                        under this Act; and
                            (ii) is a disadvantaged community 
                        or a community may otherwise become 
                        disadvantaged as a result of carrying 
                        out an eligible activity, as determined 
                        by the State; or
                    (C) a public water system located in 
                Bernalillo or Sandoval County, New Mexico, 
                Scottsdale, Arizona, or Mesquite or Washoe 
                County, Nevada, that would incur a significant 
                increase in costs in complying with national 
                primary drinking water regulations promulgated 
                under this Act.
            (3) Program.--The term `program' means the small 
        public water system assistance program established 
        under section 1472(a).
            (4) Secretary.--The term `Secretary' means the 
        Secretary of Health and Human Services, acting through 
        the Director of the Indian Health Service.
            (5) Small public water system.--The term `small 
        public water system' means a public water system 
        (including a community water system and a noncommunity 
        water system) that serves a population of 15,000 or 
        fewer individuals.

SEC. 1472. SMALL PUBLIC WATER SYSTEM ASSISTANCE PROGRAM.

    (a) Establishment.--Not later than July 1, 2003, the 
Administrator shall establish within the Environmental 
Protection Agency a small public water system assistance 
program.
    (b) Duties.--Under the program, the Administrator shall--
            (1) in accordance with section 1473, establish and 
        administer a small public water system assistance 
        program for, and provide grants to, eligible entities 
        for use in carrying out eligible activities; and
            (2) identify, and prepare annual prioritized lists 
        of, activities for eligible entities located in areas 
        governed by Indian Tribes that are eligible for grants 
        under section 1473.
    (c) Priority.--
            (1) In general.--The Administrator shall provide 
        grants to eligible entities for eligible activities 
        that--
                    (A) address the most serious risks to human 
                health from lack of compliance with the 
                regulations specified in subparagraph (B);
                    (B) are necessary to ensure compliance with 
                national primary drinking water regulations 
                applicable to eligible entities under section 
                1412; and
                    (C) assist systems serving communities that 
                are most in need, as calculated on the basis of 
                median household income, under affordability 
                criteria established by the State under section 
                1452(d).
            (2) Management cooperatives.--The Administrator 
        shall consider giving priority for grants under this 
        section to eligible activities that are carried out by 
        communities that form management cooperatives.
    (d) Technical Assistance.--In providing grants under this 
section, the Administrator shall--
            (1) use not less than 1.5 percent of funds made 
        available to carry out this section to provide grants 
        to nonprofit technical assistance organizations to be 
        used to assist eligible entities in--
                    (A) assessing needs relating to eligible 
                activities;
                    (B) identifying additional available 
                sources of funding to meet the cost-sharing 
                requirements under the program;
                    (C) planning, implementing, and maintaining 
                any eligible activities of the eligible 
                entities that receive funding under this 
                section;
            (2) require that none of the funds provided under 
        paragraph (1) be used to pay for lobbying expenses; and
            (3) require that for each fiscal year, not more 
        than 5 percent of the funds received by an eligible 
        entity under this section may be used to obtain 
        technical assistance in planning, implementing, and 
        maintaining eligible activities for which funding is 
        provided under this section.
    (e) Indian Tribes.--In providing grants under this section, 
the Administrator shall use not less than 3 percent of funds 
made available to carry out this section for each fiscal year 
to provide grants to eligible entities that are located in 
areas governed by Indian Tribes.
    (f) Limitation on Receipt of Funds.--
            (1) In general.--Except as provided in paragraph 
        (2), a grant under this section shall not be provided 
        to an eligible entity that, as determined by the 
        Administrator--
                    (A) does not have the technical, 
                managerial, operations, maintenance, or 
                financial capacity to ensure compliance with 
                national primary drinking water regulations 
                applicable to the eligible entity under section 
                1412; or
                    (B) is in significant noncompliance with 
                any applicable national primary drinking water 
                regulation.
            (2) Exception for receipt of grant.--An eligible 
        entity described in paragraph (1) may receive a grant 
        under this section only--
                    (A) if the Administrator determines that 
                use of the grant will ensure compliance with 
                national primary drinking water regulations 
                applicable to the eligible entity under section 
                1412;
                    (B)(i) to restructure or consolidate the 
                facility to achieve compliance with applicable 
                national primary drinking water regulations; or
                    (ii) in a case in which restructuring or 
                consolidation of the facility is not 
                practicable, if the Administrator determines 
                that--
                            (I) the eligible entity has made a 
                        good faith effort to achieve compliance 
                        with applicable national primary 
                        drinking water regulations; and
                            (II) the eligible entity is 
                        adhering to an enforceable schedule for 
                        complying with those regulations; and
                    (C) in a case in which paragraph (1)(A) 
                applies to an eligible entity, and the eligible 
                entity agrees to undertake feasible and 
                appropriate changes in operations (including 
                changes in ownership, management, accounting, 
                rates, maintenance, consolidation, provision of 
                an alternative water supply, or other 
                procedures), if the Administrator determines 
                that the measures are necessary to ensure that 
                the eligible entity has the capacity described 
                in (1)(A) to comply with applicable national 
                primary drinking water regulations over the 
                long term.
            (3) Review.--Before providing assistance under this 
        section to an eligible entity that is in significant 
        noncompliance with any national primary drinking water 
        regulation applicable to the eligible entity under 
        section 1412, the Administrator shall conduct a review 
        to determine whether paragraph (1)(A) applies to the 
        entity.
    (g) Cost Sharing.--
            (1) In general.--Except as provided in paragraph 
        (2), the share of the total cost of an eligible 
        activity funded by a grant under this section shall not 
        exceed 80 percent.
            (2) Waiver of cost-sharing requirement.--The 
        Administrator may waive the requirement of an eligible 
        entity to pay all or a portion of the share of an 
        eligible activity that may not be funded by a grant 
        under this section, based on a determination by the 
        State that the eligible entity is unable to pay any or 
        all of the share.

SEC. 1473. SMALL PUBLIC WATER SYSTEM ASSISTANCE PROGRAM FOR INDIAN 
                    TRIBES.

    (a) Establishment.--Not later than July 1, 2003, the 
Administrator shall establish a small public water system 
assistance program for Indian Tribes, through which eligible 
entities located in areas governed by the Indian Tribe may 
receive grants for eligible activities under this part.
    (b) Program Priority Requirement.--
            (1) List of eligible activities.--
                    (A) In general.--The Administrator, in 
                consultation with the Secretary, shall, for 
                each fiscal year, identify, and, using the 
                priority criteria described in paragraph (2) 
                and considering the additional criteria 
                described in paragraph (3), list in descending 
                order of priority, eligible activities for 
                eligible entities located in areas governed by 
                Indian Tribes for which funds provided from a 
                grant under this part may be used.
                    (B) Coordination.--
                            (i) In general.--To the maximum 
                        extent practicable, the Administrator 
                        shall ensure that the preparation of 
                        the list under subparagraph (A) is 
                        coordinated with any needs assessment 
                        conducted under section 1452(i)(4).
                            (ii) Additional consideration.--Any 
                        additional financial needs of small 
                        public water systems located in areas 
                        governed by Indian Tribes that are 
                        associated with the cost of complying 
                        with a national primary drinking water 
                        regulation (including a regulation 
                        concerning arsenic) that is promulgated 
                        after the then most recent needs survey 
                        conducted under section 1452(i)(4) 
                        shall be factored into the 
                        determination of financial need for, 
                        and prioritization of, eligible 
                        activities under this section.
            (2) Priority criteria.--In preparing the list under 
        paragraph (1), the Administrator shall give priority 
        for the use of grants to eligible activities that--
                    (A) address the most serious risk to human 
                health;
                    (B) are necessary to ensure compliance with 
                national primary water regulations applicable 
                to eligible entities under section 1412; and
                    (C) assist systems most in need, as 
                calculated on the basis of median household 
                income, under affordability criteria published 
                by the Administrator under section 1452(d).
            (3) Additional criteria.--In addition to the 
        priority criteria described in paragraph (2), the 
        Administrator shall, in preparing a list under 
        paragraph (1), consider giving additional priority to 
        any listed eligible activities that are to be carried 
        out by communities that form management cooperatives 
        (including management cooperatives between systems that 
        do not have public water system connections).
    (c) Use of Funds.--
            (1) In general.--Using funds made available to 
        carry out section 1472, the Administrator shall provide 
        to an eligible entity located in an area governed by an 
        Indian Tribe, on a cost-shared basis (in accordance 
        with subsection (f)), a grant to be used for an 
        eligible activity (including source water protection) 
        the purpose of which is to ensure compliance with 
        national primary drinking water regulations applicable 
        to the eligible entity under section 1412.
            (2) Allocation of grant funding.--For each fiscal 
        year, the Administrator, in consultation with the 
        Secretary, shall provide grants under paragraph (1) for 
        the maximum number of eligible activities for which the 
        funding allocation makes assistance available, based on 
        the priority assigned by the Administrator to eligible 
        activities under subsection (b).
    (d) Limitation on Use of Funds.--For each fiscal year, not 
more than 5 percent of the funds received by an eligible entity 
under this section may be used to obtain technical assistance 
in planning, implementing, and maintaining eligible activities 
that are funded under this section.
    (e) Limitation on Receipt of Funds.--
            (1) In general.--Except as provided in paragraph 
        (2), a grant under this section shall not be provided 
        to an eligible entity that, as determined by the 
        Administrator--
                    (A) does not have the technical, 
                managerial, operations, maintenance, or 
                financial capacity to ensure compliance with 
                national primary drinking water regulations 
                applicable to the eligible entity under section 
                1412; or
                    (B) is in significant noncompliance with 
                any applicable national primary drinking water 
                regulation.
            (2) Exception for receipt of grant.--An eligible 
        entity described in paragraph (1) may receive a grant 
        under this section only--
                    (A) if the Administrator determines that 
                use of the grant will ensure compliance with 
                national primary drinking water regulations 
                applicable to the eligible entity under section 
                1412;
                    (B)(i) to restructure or consolidate the 
                facility to achieve compliance with applicable 
                national primary drinking water regulations; or
                    (ii) in a case in which restructuring or 
                consolidation of the facility is not 
                practicable, if the Administrator determines 
                that--
                            (I) the eligible entity has made a 
                        good faith effort to achieve compliance 
                        with applicable national primary 
                        drinking water regulations; and
                            (II) the eligible entity is 
                        adhering to an enforceable schedule for 
                        complying with those regulations; and
                    (C) in a case in which paragraph (1)(A) 
                applies to an eligible entity, and the eligible 
                entity agrees to undertake feasible and 
                appropriate changes in operations (including 
                changes in ownership, management, accounting, 
                rates, maintenance, consolidation, provision of 
                an alternative water supply, or other 
                procedures), if the Administrator determines 
                that the measures are necessary to ensure that 
                the eligible entity has the technical, 
                managerial, operations, maintenance, or 
                financial capacity to comply with applicable 
                national primary drinking water regulations 
                over the long term.
            (3) Review.--Before providing assistance under this 
        section to an eligible entity that is in significant 
        noncompliance with any national primary drinking water 
        regulation applicable to the eligible entity under 
        section 1412, the Administrator shall conduct a review 
        to determine whether paragraph (1)(A) applies to the 
        entity.
    (f) Cost Sharing.--
            (1) In general.--
                    (A) Limit.--Except as provided in paragraph 
                (2), the share of the total cost of an eligible 
                activity funded by a grant under this section 
                shall not exceed 80 percent.
                    (B) Use of other federal funds.--To pay the 
                portion of an eligible activity that may not be 
                funded by a grant under this section, an 
                eligible entity may use Federal financial 
                assistance other than assistance received under 
                this section.
            (2) Waiver of cost-sharing requirement.--
                    (A) In general.--The Administrator may 
                waive the requirement of an eligible entity to 
                pay all or a portion of the share of eligible 
                activity that may not be funded by a grant 
                under this section based on a determination by 
                the Administrator that the eligible entity is 
                unable to pay any or all of the share.
                    (B) Limitation.--For each fiscal year, the 
                total amount of cost-share waivers provided by 
                the Administrator under subparagraph (A) shall 
                not exceed 30 percent of the amount of funding 
                used to provide grants to Indian Tribes under 
                this part.
    (g) Unobligated Funds.--Any funds not obligated by the 
small public water system assistance program established under 
subsection (a) for a purpose consistent with the purposes 
described in section 1472 and subsection (c) within 1 year 
after the date on which funds are made available to carry out 
this part shall be returned to the Administrator for use in 
providing new grants under this part.

SEC. 1474. REPORTS.

    (a) Administrator.--Not later than January 1, 2003, and 
annually thereafter through January 1, 2007, the Administrator 
shall--
            (1) submit, to the Committee on Environment and 
        Public Works of the Senate and the Committee on Energy 
        and Commerce of the House of Representatives, a report 
        that, for the preceding fiscal year--
                    (A) lists the eligible activities for 
                eligible entities, as prepared under section 
                1473(b)(1), located in areas governed by Indian 
                Tribes, and in each State, receiving funds 
                under this part;
                    (B) identifies the number of grants awarded 
                under this part by the Administrator to 
                eligible entities located in areas governed by 
                Indian Tribes, and in each State, receiving 
                funds under this part;
                    (C) identifies each eligible entity that 
                receives a grant to carry out an eligible 
                activity;
                    (D) identifies the amount of each grant 
                provided to an eligible entity to carry out an 
                eligible activity; and
                    (E) describes each eligible activity funded 
                by such a grant (including the status of the 
                eligible activity); and
            (2) make the report under paragraph (1) available 
        to the public.
    (b) Indian Tribes.--Not later than November 1 following 
each fiscal year in which an Indian Tribe receives funding 
under section 1473, the Indian Tribe shall submit to the 
Administrator a report that, for the preceding fiscal year--
            (1) identifies the number of grants awarded to 
        eligible entities located in areas governed by the 
        Indian Tribe;
            (2) identifies each such eligible entity that 
        received a grant to carry out an eligible activity;
            (3) identifies the amount of each grant provided to 
        such an eligible entity to carry out an eligible 
        activity; and
            (4) describes each eligible activity funded by such 
        grants (including the status of the eligible activity).

SEC. 1475. AUTHORIZATION OF APPROPRIATIONS.

    There is authorized to be appropriated to carry out this 
part $1,000,000,000 for each of fiscal years 2003 through 2007.

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